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Billabong to Divest Smaller Brands to Pay Down Debt

Billabong wants to streamline its brand portfolio.

A few of the Australian surfwear company’s smaller brands, including Tigerlily, VonZipper and Xcel, could soon be up for sale as it endeavors to pay down around $200 million in debt and simplify its business. Earlier this year, Billabong sold longboard brand Sector 9 to Bravo Sports for around $12 million.

“2016 was a challenging year for our global action sports industry,” Billabong International chair Ian Pollard told shareholders Tuesday at the company’s annual general meeting. “Even with the continued sales growth of our big three brands [Billabong, RVCA and Element], operational progress and significant reductions in our costs of doing business, we reported a net loss of $23.7 million Australian dollars ($17.5 million).”

Currency challenges contributed to that loss, too. The company pays for its products in U.S. dollars, which resulted in costs increasing by 17 million Australian dollars ($12.5 million) last year.

“Currency takes a little longer to overcome, but I’m confident that our sourcing and merchandising strategies will over time recapture this lost margin,” chief executive officer Neil Fiske said.

But Billabong’s fiscal year 2017 is off to a slow start. Fiske explained that sales were soft in parts of Asia-Pacific and Europe in the first four months, citing unseasonal weather that also affected the company’s wholesale account and resulted in fewer re-orders. In addition, sales across the overall surf retail market in Australia were particularly weak in October, though trading picked up in November.

“Meanwhile, in the Middle East, we have seen an inventory back-up with our distributor partner cut into first half sales, and expect that situation to correct gradually over the course of the fiscal year,” Fiske noted.

Based on trading to date, the company anticipates first-half EBITDA to be down substantially on the same period last year, but expects full-year EBITDA to be ahead of fiscal 2016 and in the range of 60 to 65 million Australian dollars ($44 to $48 million).

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“It has been three years since our then newly-appointed CEO announced our seven-part strategy to transform the company,” Pollard said. “The board continues to believe it is the right strategy and provides us all with clarity of purpose and direction.”

That seven-part turnaround strategy centered on doing “fewer things, bigger and better” and transforming the company from a “complex, regional, fragmented business” to a “much simplified, brand-led” one.

Fiske cited independent analysis by ActionWatch that found Billabong has widened its market share lead in men’s and women’s surf apparel in both the U.S. and Australia. Meanwhile, RVCA achieved 44 percent growth in wholesale equivalent sales in Australia last year and Element has started to recapture its core position in the U.S. market.

“We have achieved all this at a time when a number of our traditional wholesale accounts have faced major challenges, including negative same-store sales and, in some cases, bankruptcies and closures,” Fiske noted.

Total group sales, excluding discontinued operations, rose 4.6% to 1.1 billion Australian dollars (roughly $813 million) in fiscal 2016 and overall comparable sales, including brick-and-mortar and e-commerce, were up 1.8%.