Can Billabong ride out this wave of loss?

Is the worst really out of the way?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The controversy about the future of Billabong (ASX: BBG) takes yet another turn with the massive write-down of assets totalling $776.5 million, which more than three times the company’s total market capitalisation of $232 million. The fall of this Australian icon comes from a mix of the GFC crunch and bad management of the international board shorts and surfwear retailer and distributor.

Revenue was down 6.84% from $1.44 billion to $1.34 billion, and a net loss of $859.5 million resulted after cost of impairments of assets. Gross gearing is at 120%, and although debt is slowly being paid down, the net interest expense of $25.67 million was just a little less than half of the company’s gross profits, so mortgage stress will be at least one thing to look forward to for shareholders. $68 million in proceeds from a capital raising in July 2012 were used to pay down debt.

The group currently operates 562 stores in Australia, New Zealand, the US, Europe and South Africa, so despite the financial woes, it still has a very wide footprint. It also has two online retail sales websites.

Sales in Europe were down, and earnings fell by $19.5 million. Sovereign debt issues and overall consumer confidence erosion kept retail sales weak. In Australasia, profits were up $4.7 million, assisted by cost savings from the company’s store closure program. The Americas saw a 5.6% drop in revenue, yet earnings before interest, tax, depreciation and amortisation was slightly higher than the previous year — $38 million compared to $37.7 million.

Large investors have been circling the company as a takeover target, and as many as four potential offers came in this 2013 year. The would-be acquirers made their offers, got a peek into the books and the company’s near-term outlook, and the first three backed out. It began to make news, asking the question of “what did they get to see that we don’t know yet?” Now we know.

The last buyout offer finally disappeared itself, but currently Billabong is in talks with the fourth group about funding, and they are hashing out a deal to keep the money flowing.

Just as recent as 24 June, the share price was trading at $0.12, way, way lower than its 2007 high of $14.20.  Interestingly, had you bought it on that June day, you would have almost quadrupled your investment in about two months because it ran up to $0.60 and sits at around $0.50 currently. That sure beat the S&P ASX All Ordinaries Index (ASX: XAO) if anyone was still looking to buy Billabong.

Foolish takeaway

“It ain’t over til it’s over” fits this story. For the older shareholders, great amounts of value have been lost, but other turnarounds have happened in the past, too. The best solution may be to take the company private, fine-tune the business for a few years until it is in peak shape, then refloat the transformed company. It can happen in the right hands.

Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »