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Billabong: Misery loves company

Billabong International Limited (ASX: BBG) has been one of the business stories of the year thus far. The surf brand most of us wore at some stage over the past 30 years has been through tough times lately, suffering from a reluctant consumer, changing tastes and a strategic shift that is either misinformed or simply taking a long time to bear fruit, depending on your perspective.

Two pieces of news out today, March 13, highlight some of the challenges facing the company.

Firstly, the Australian Financial Review reported that short-sellers – who make money when share prices fall – have been flocking back to the stock in the face of the Billabong board’s rejection of the recent takeover offer from TPG Capital. Without a competing bid or significant sales and profit recovery, these traders are betting that the share price will fall from its current level of around $2.79 (remember the TPG Capital bids were at $3.00 and then $3.30) back towards (or perhaps below) the pre-bid price well under $2.

The other, demonstrating just how tough discretionary fashion retailing is at the moment, was an article in the Fairfax daily press (The Sydney Morning Herald and The Age) reporting the tough time that Billabong competitor Quiksilver (NYSE: ZQK) was having in the same markets – specifically Australia and New Zealand, according to Quiksilver’s Executive Chairman Robert McKnight, who was addressing an analyst briefing overnight.

Depending on your view, this is either more evidence of the difficulty facing discretionary retailing in general and Billabong in particular – and good reason to give the sector a wide berth, or a degree of comfort that much of what ails Billabong is temporary, and when spending improves, Billabong will be at the front of the line collecting tickets.

What is certain is that there will be some turbulent times ahead for investors as we wait to see how this plays out.

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Scott Phillips is a Motley Fool investment analyst. You can follow him on Twitter @TMFGilla. The Motley Fool’s purpose is to educate, amuse and enrich investors.This article contains general investment advice only (under AFSL 400691).

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