Retail shares have taken a pounding as a profit warning from surfwear giant Billabong International raised fears that what was already expected to be a difficult Christmas could prove even worse.
Billabong forecast first half earnings could fall up to 26 per cent from a year earlier amid a significant deterioration in trading conditions over the past two months.
That sent the surfwear manufacturer and retailer’s stock plunging 44 per cent to $2.03.
It was the lowest close and largest one-day fall in the history of the stock, which now sits below the issue price of $3.15 when Billabong floated in August 2000.
Fat Prophets analyst Colin Whitehead said investors were losing confidence with the ability of Billabong management to generate satisfactory returns.
“That confidence has just been consistently smashed around the head with a baseball bat over the last few years because time after time all they do is downgrade earnings,” Mr Whitehead said on Monday.
“If you combine a bad near-term story with a market that is far from optimistic, you are going to end up with a battering on the share price.”
Billabong said in a statement that it was focused on reducing working capital and maximising cash flow from operating activities, but “the poor macroeconomic and trading environment is hampering the group’s ability to clear excess inventory.”
Billabong said it expected to report earnings before interest, tax, depreciation and amortisation (EBITDA) between $70 million and $75 million for the six months to December 31, 2011, down from EBITDA of $94.6 million in the prior corresponding period.
While it declined to offer full year guidance given the poor macroeconomic and trading environment, Billabong said strong underlying EBITDA growth compared with the prior corresponding period in constant currency terms was not expected.
News of the sharp deterioration echoed similar sentiments from other retailers in recent weeks.
Last Thursday, audio visual products retailer JB Hi-Fi said it expected to report a fall in first half earnings before interest and tax (EBIT) for the first time in its history.
Also, Fletcher Jones was placed in administration earlier this month after almost a century in business, with 15 stores to close and 61 staff made redundant.
The situation was similarly gloomy at the top end of town, with David Jones in November maintaining forecasts of a 15 to 20 per cent decline in first half profit after tax.
The consumer discretionary sector ended the day down four per cent, according to Iress data, with Harvey Norman (down 8.7 per cent), JB Hi-Fi (down 7.2 per cent), David Jones (down 9.1 per cent) and Myer (down 6.2 per cent) all posting significant falls.
In addition to an operational review designed to slash more costs within the company, Billabong said investment bank Goldman Sachs would undertake a strategic review of the company’s capital structure.
This would cover all alternatives, the company said.
An equity raising was not the preferred path at this time, Billabong added.
