SURFING brand Billabong International says its strategy of buying shops will increase the struggling company's margins.
Billabong's comments that it is on track for strong earnings growth this financial year helped its shares rise 5 per cent yesterday.
Window of opportunity: Billabong is trying a different tack to improve its margins.Credit: Bloomberg
The move by large chains to sell in-house brands, thus reducing floor space for surf brand wholesalers such as Billabong, had prompted the company to buy chain stores and develop an online business, chairman Ted Kunkel said.
As well, smaller retailers were buying later rather than well before the season's start, as per tradition, Mr Kunkel said.
These trends had existed over several years, mainly in North America and parts of Australasia, but had sharply accelerated in recent years, mainly because of the global financial crisis.
''Left unchallenged, these trends had the capacity to undermine the future growth prospects of the Billabong Group,'' he told the company's annual meeting yesterday.
''It was determined that the Billabong group would, in some regions, look to gain greater control of its route to market.''
He said this led to a series of small retail acquisitions, then the takeover of larger retail chains over the past year, including Canada's West 49 and Australia's Surf Dive 'n' Ski, Jetty Surf, Rush Surf and Surfection.
The takeovers made sound commercial sense, but would hit profitability while the company moved from being a wholesaler to a retail store owner, Mr Kunkel said.
Online sales, which made up 3 per cent of revenue in 2010-11, would rise by more than 50 per cent this financial year, Mr Kunkel said.
Chief executive Derek O'Neill said Billabong was on track to improving underlying earnings before interest, tax, depreciation and amortisation strongly in 2011-12, in constant-currency terms.
Total sales for the three months to September 30 had improved by 24.7 per cent compared with a year earlier in constant-currency terms, and revenue excluding acquisitions had increased 6 per cent.
Billabong shares gained 31¢, or 8.6 per cent, to $3.91 yesterday.
The shares lost just over half of their value this calendar year as Billabong reported a worrying slump in profit.
AAP