Shifts at Billabong continue as the recent takeover from Altamont Consortium and GE Capital include more changes. The major news is that Paul Naude, President Americas for Billabong is resigning to pursue other opportunities. After 15 years at the company and continued efforts to save it, he’s ending his time with the brand.
Last month we reported that Billabong’s CEO Launa Inman has been ousted and replaced with Scott Olivet, a former Oakley executive and previous Nike executive, as part of a new plan lead by funding from Altamont Partners.
However as of July 16, 2013, Scott Olivet is not yet CEO and discussions are continuing with the Takeovers Panel regarding this. They believe it may take another week, so meanwhile, Peter Myers is the acting CEO. So, the saga continues for the beleaguered surf brand, which also sold its last greatest asset, DaKine for Australian $70 million last month.
Skullcandy, which used to have a significant hold in the growing space of wearable technology and designer headphones, continues to feel the squeeze. They announced their Q2 financial results with net sales decreasing 29.9% to $50.8 million from $72.4 million in the same quarter last year.
“The second quarter was about taking the initial steps toward getting our house in order to drive positive, long-term transformation at Skullcandy,” stated Hoby Darling, President and Chief Executive Officer. “We had to reduce expenses and recalibrate our operating platform to better align with our current sales trajectory. Our decisive actions during the quarter allowed us to break even on the bottom line despite ongoing sales headwinds. With our product, marketing and sales teams now consolidated in Park City we are in a much better position to build momentum and establish Skullcandy as the world’s leading lifestyle and performance audio company driven by the creativity and irreverence of youth culture. I am excited about the future and I am confident that we are assembling the right team to successfully execute our strategic plan and deliver significant shareholder value.”
Net sales in the second quarter of 2013 decreased 29.9% to $50.8 million from $72.4 million in the same quarter of the prior year. North America net sales decreased 39.1% to $39.0 million from $64.1 million in the same quarter of the prior year. The Company experienced lower sell-in at a key customer and a decline in sales to several of its specialty retailers. Consistent with its strategy, the Company purposefully scaled back its sales to the off-price channel which were down approximately 52% compared with the second quarter of 2012. In addition, the second quarter of 2012 included increased sales from a significant packaging change. International net sales increased 40.6% to $11.8 million from $8.4 million in the same quarter of the prior year. Included in the North America segment in second quarter 2013 and second quarter 2012 are net sales of $1.8 million and $7.8 million, respectively, of products that were sold from the United States to customers with a “ship to” location outside of the United States. Including these sales in the international segment, international net sales decreased 15.9%, and North America net sales decreased 33.9%, compared to the same quarter in the prior year. The decrease in adjusted international net sales is primarily due to a $2.4 million negative impact of winding down the Company’s relationship with its former Canadian distributor in anticipation of going to a direct model in that country.
Gross profit in the second quarter of 2013 decreased 35.3% to $22.8 million from $35.2 million in the same quarter of the prior year. Gross margin was 44.9% in the second quarter of 2013 compared to 48.6% in the second quarter of 2012. The decrease in gross margin is primarily due to the impact of the gaming category carrying lower gross margins, coupled with higher sales allowances on gaming products in the retail channel which was not in place a year ago. In addition, gross margin was negatively impacted by certain sales allowances associated with the transition to a direct sales model in Canada and slightly higher raw material costs. Certain reclassifications have been made to the Company’s 2012 results to conform to the 2013 presentation to better reflect where certain costs should be presented in the statement of operations. For this reason, tooling depreciation and warranty related expenses are being included in cost of goods sold for all comparable periods.
Selling, general and administrative (SG&A) expenses in the second quarter of 2013 increased 2.0% to $24.0 million from $23.5 million in the same quarter of the prior year. As a percentage of net sales, SG&A expenses increased to 47.2% from 32.4% in the same quarter of the prior year. SG&A expenses in the second quarter of 2013 include $1.1 million in costs related to the closure of the San Clemente, California office which was announced on June 18, 2013. These costs include certain termination benefits and the relocation of the marketing, creative, business development and legal departments, as well as certain sales and international personnel to the Company’s headquarters in Park City, Utah. Even as the Company implements cost control initiatives, the Company continues to invest in marketing and demand creation with an increase in expenses of $0.6 million compared to the same quarter of the prior year.