Billabong’s CEO Launa Inman has been ousted and replaced with Scott Olivet, a former Oakley executive and previous Nike executive, apparently as part of a new plan lead by potential funding from Altamont Partners. So, the saga continues for the beleaguered surf brand, which also sold its last greatest asset, DaKine for Australian $70 million.
On Tuesday, July 16, 2013, it was announced that Altamont Capital Partners would have the option for 15% of the company in exchange for A$325 million bridging loan. The deal included relieving Inman of her duties and the DaKine deal.
“We had highlighted the company’s debt issues previously and it was imperative to deliver a refinancing that retained an opportunity for shareholders to participate in the future of the company,” Billabong Chairman Ian Pollard said in a statement. “The Altamont consortium presented the best available, certain and executable opportunity in these challenging circumstances.”
This will give Altamont a large stake in Billabong, up to 40.5% possibly if all options and preference share issues are exercised. But at this point, it seems as though Billabong’s options are extremely limited. Billabong has been going through financial hardship now for years due to a variety of things including lack of connection with today’s youth culture marketplace (see also our Youth Culture Studies), badly timed expansion plans, and then of course, not taking A$3.50 a share back in early 2012 from TPG Capital Management. (It has since been through two other potential takeover plans, both of which declined in the end.)
VF Reports Q2 Guidance 2013
Meanwhile, VF Corp. owners of Wrangler, Lee, Vans, The North Face, Timberland, and others, has revealed their second quarter 2013 results and raised their full-year earnings guidance. Significantly, their Outdoor and Action Sports segments have increased 6%, making up now 50% of VF’s total sales this past quarter.
“Our strong second quarter results demonstrate that VF’s diverse portfolio of brands supported by powerful platforms is a potent engine for growth,” said Eric Wiseman, VF Chairman and Chief Executive Officer. “By staying sharply focused on our strategies – leading in innovation, expanding geographically and connecting more deeply with our consumers – we are winning in the global marketplace and are on track to deliver another record year for VF.”
Revenues rose 4 percent to $2.2 billion compared with the same period of 2012, driven by strength in Outdoor & Action Sports, international and direct-to-consumer businesses. Gross margin improved 240 basis points to 48.5 percent, an all-time high for any quarter in VF’s history. This performance, which includes improvements in nearly every coalition, compares with 46.1 percent in the same period of 2012. The higher gross margin reflects lower year-over-year product costs and the continued shift in our revenue mix toward higher margin businesses.
Net income on an adjusted basis grew by 16 percent to $142 million from $123 million in the second quarter of 2012. Adjusted earnings per share – which excludes Timberland acquisition-related items of $0.03 per share in the second quarter – increased 14 percent to $1.27 per share from $1.11 per share during the same period last year. Last year’s second quarter adjusted earnings per share of $1.11 excluded a $0.32 per share gain from the sale of John Varvatos and $0.03 per share in acquisition-related expenses.
Additionally, last year’s second quarter earnings per share included a non-recurring $0.10 per share discrete tax benefit primarily related to the settlement of prior years’ tax audits. On a GAAP basis, second quarter net income was down 11 percent to $138 million or $1.24 per share. Outdoor & Action Sports revenues rose 6 percent in the quarter to $1.1 billion with balanced growth across both the U.S. and international markets, and its wholesale and direct-to-consumer channels.
The North Face® brand revenues rose 5 percent globally driven by a mid-teen percentage rate increase in its direct-to-consumer sales and more than 20 percent growth in its international business. Revenues for The North Face® brand’s Americas region were down slightly, with a modest decline in its wholesale business that was not fully offset by its strong direct-to-consumer business, which grew at a mid-teen percentage growth rate. Second quarter revenues for the brand grew by 10 percent in Europe and by more than 40 percent in Asia Pacific demonstrating that The North Face® brand’s international strategy continues to deliver outstanding results.
Vans®, one of VF’s fastest growing and most profitable brands, continues to perform well on all fronts: wholesale, direct-to-consumer and in all regions of the world. In the second quarter, Vans® brand global revenues were up 15 percent including low-teen percentage growth in the Americas, 20 percent growth in its European business and more than 20 percent growth in the Asia Pacific region. The Vans® brand posted strong mid-teen percentage revenue increases in both its wholesale and direct-to-consumer channels globally.
Second quarter revenues for the Timberland® brand were down 3 percent. In the Americas region, revenues increased at a low single-digit percentage rate driven by a high single-digit increase in direct-to-consumer sales, offset by a modest decline in its wholesale business. In Asia Pacific, where Japan remains the brand’s largest market, second quarter revenues increased at a low single-digit percentage rate (low double-digit rate on a constant-dollar basis). With continued challenging conditions in Europe, the Timberland® brand’s revenues declined at a low double-digit percentage. Globally, on a constant-dollar basis, the Timberland® brand’s direct-to-consumer business was up by a mid single-digit percentage rate in the quarter.
Second quarter Outdoor & Action Sports operating income rose 22 percent to $100 million and operating margin increased 120 basis points to 9.1 percent, compared with 7.9 percent in the 2012 period. For the first half of 2013, Outdoor & Action Sports revenues grew 8 percent.
For the full year, VF continues to anticipate that coalition revenues will increase by about 10 percent, driven by particular strength in both the Vans® and The North Face® brands. Jeanswear second quarter revenues were up 3 percent to $612 million, driven by a mid single-digit percent increase in the Americas region, which benefitted in part by the normalization of seasonal product orders from the first quarter into the second quarter. Jeanswear revenues for the European business were up 1 percent.
In the Asia Pacific region, second quarter revenues declined at a mid single-digit rate – a sequential improvement from the first quarter – as the Lee® brand continues to work through an industry-wide build-up in inventories in China that began during the latter part of 2012. Revenues for the Wrangler® brand were down 1 percent with about flat results in the Americas business, which saw continued strength in its Western specialty, Canadian and Latin American businesses, offset by a modest decline in its Mass business.
Wrangler® brand revenues in Europe increased slightly and sales in the Asia Pacific region declined slightly in the quarter. The Lee® brand’s second quarter revenues were up 10 percent globally driven by a mid-teen percentage increase in Americas revenues where the business saw strong results from its seasonal and core jeans business.
Second quarter revenues for the Lee® brand in Europe were up slightly and, as previously noted, the Lee® brand’s sales in Asia Pacific were lower. Favorable year-over-year product costs and continued improvements in operating efficiencies led to a 17 percent increase in Jeanswear operating income to $109 million. Operating margin reached 17.8 percent in the quarter with improvements in the Wrangler® and Lee® brands across every region of the world. For the full year, U.S. Jeanswear revenues are expected to increase at a mid single-digit rate. On a global basis, Jeanswear should grow at a low single-digit rate, up from its previous expectation of modest growth.
International Review Second quarter international revenues increased 6 percent. In Asia Pacific, revenues were up 10 percent in the quarter, driven by 17 percent growth in China and strong results by nearly all Outdoor & Action Sports brands. Americas (non-U.S.) revenues increased 10 percent with strong performances from the Vans®, The North Face®, Timberland® and Wrangler® brands.
Revenues in Europe rose 2 percent held back by the Timberland® brand, which continues to be impacted by difficult economic conditions. The North Face® and Vans® brands saw strong direct-to-consumer revenue increases in the quarter, rising 13 percent and 44 percent, respectively. International revenues reached 34 percent of total VF revenues in the second quarter compared with 33 percent in the same period of 2012.
Direct-to-consumer revenues increased 8 percent in the second quarter including a 15 percent increase in The North Face® brand, a 16 percent increase in the Vans® brand and a 39 percent increase in the Kipling® brand. A total of 35 stores were opened across our brands in the quarter bringing the total number of owned retail stores to 1,157. Direct-to-consumer revenues reached 22 percent of total revenues in the second quarter compared with 21 percent in the 2012 period. 2013 Earnings Per Share Guidance Raised Revenue guidance for 2013 remains unchanged, with revenues expected to increase by 6 percent to $11.5 billion.
Given the strong results achieved in the first half of 2013, full-year gross margin expansion is now expected to slightly exceed the previously anticipated 100 basis point improvement over 2012. Based on stronger gross margin improvement, adjusted earnings per share in 2013 are now expected to increase to $10.85 per share, up $0.10 from the $10.75 per share guidance provided on April 26. On a GAAP basis, which includes an estimated $0.07 per share in Timberland acquisition-related expenses, earnings per share in 2013 are now expected to rise to $10.78 per share, up $0.13 from the prior guidance of $10.65 per share.