Shares in Billabong slumped a further 18 per cent to a fresh record low following its biggest one-day percentage fall on Monday, as analysts warned the surfwear retailer is heading for a wipeout.
Stocks plunged 44 per cent on Monday after the embattled retailer said its earnings before interest, tax, depreciation and amortisation were expected to fall by as much as 26 per cent in the six months to December compared to the same period a year before.
The rout continued on Tuesday, with stock hitting a record low of $1.70, down more than three-quarters since the start of the year when Billabong traded north of $8.60.
Morningstar Equities said in a research note that Billabong sales had been hit by poor weather and a strong Australian dollar, while in other key markets of Europe and the US the economic downturn “is likely to ensure retail conditions remain constrained”.
Billabong management said it no longer expected strong earnings growth for the full year.
This compares with the situation two months ago when the company was optimistic enough to announce a dividend.
Commonwealth Bank analysts downgraded their price target for the stock to $1.60 recently and warned the company had few options left to find the $250 million to $350 million needed to restore its balance sheet to health.
“There remain some operational risks that we need to see addressed before we can become more comfortable with the company as an investment,” the analysts said in a note.
Billabong is not the only retailer being buffeted by the headwinds coming from the European financial crisis.
Last week’s profit warning by JB Hi-Fi highlighted how even previously resilient retailers had been hit hard by the downturn as more shoppers look to save money by shopping online.
IBISWorld senior analyst Ian MacGowan said he expected growth in high street spending to be “only barely positive” this Christmas, despite a boost from two recent rate cuts by the Reserve Bank of Australia.
“This is all part of an ongoing trend for the retailers,” Mr MacGowan said.
At 1536 AEDT on Tuesday, Billabong shares were down 11.33 per cent, or 23 cents at $1.80.
