Billabong’s $500 million dumper

Surfwear maker, Billabong International (ASX: BBG) has reported a $537 million loss for the six months to December 2012, after including impairment charges, and other writedowns of $567 million.

Billabong wrote down the value of its investment in Nixon by $107 million, and took a $428 million impairment on goodwill and brands. The company has now written off around $1 billion from intangible assets over the past 12 months – mainly the result of a string of overvalued acquisitions.

Excluding significant items, net profit for the half year halved from $38 million in 2011 to $19 million in 2012. Profit was hit by falling earnings in Europe and the Americas, primarily as a result of store closures and weak trading conditions in Europe.

Having previously guided to full year earnings before interest, tax, depreciation and amortisation (EBITDA) of between $85 to $92 million, Billabong has now revised that forecast down to between $74 to $85 million, before significant items.

Like Fairfax Media Holdings (ASX: FXJ), APN News & Media Limited (ASX: APN), and Seven West Media (ASX: SWM), Billabong has been forced to restructure  its business. The company has been closing unprofitable stores, cutting the number of its suppliers and improving its e-commerce platforms and infrastructure, as it faces increasing competition from online only retailers.

Foolish takeaway

Despite having two takeover offers on the table at $1.10 per share, investors have punished Billabong over today’s results, with shares falling more than 4% to less than 90 cents at lunch time. The takeover overs are expected to finalised next month, but given recent disappointing results, it appears they are less likely to go ahead.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Billabong and Fairfax.

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