Why You Should Invest In Billabong

| About: BILLABONG INL (BLLAF)
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Summary

It is time to buy Billabong.

Billabong has shown significant growth the last three years.

CEO Neil Fiske is what Billabong needs for future growth.

The retail industry has seen substantial gains recently. In recent years we have seen the rise of new brands like vineyard vines and Lululemon (NASDAQ:LULU) that have taken over the retail industry. I believe that this new consumer trend will continue. There are several smaller retail companies that are silently taking substantial strides and will begin see investor interest. One of these small clothing companies is Billabong (OTCPK:BLLAY) (OTCPK:BLLAF). Billabong faced a drastic slash in price of its shares starting in 2008. Billabong had known that is was in trouble for a while. It had taken on too much debt from opening stores. The past few years have led to major changes for the company. The company refinanced its debt with a private-equity fund in 2013. This with the acquisition of CEO Neil Fiske has made many investors bullish on Billabong's comeback. Sebastian Evans, who manages the second best performing mutual fund in Australia, remains very bullish that Billabong will rebound. Billabong has since cut costs by finding cheaper suppliers. Billabong has also seen drastic growth following the guidance of Neil Fiske. Neil Fiske has been the major catalyst of Billabong.

Neil Fiske:

Neil Fiske has a very impressive background. He first started out as a partner at Boston Consulting Group. Boston Consulting Group is one of the "Big Three" strategy consulting firms in the world. Since leaving BCG he has been the CEO of two companies other than Billabong. He was the CEO of Bath and Body Works, a division of L Brands (NYSE:LB). While here he was recognized as 'Marketer of the Year' in 2004 and 'Retailer of the Year' in 2005 by Women's Wear Daily. From 2007-2012 Neil served as the President, CEO, and Director of Eddie Bauer holdings. Neil Fiske's first move as Billabong's CEO was to cut debt. By closing close to 30% of its inefficient brick and mortar stores Neil was able to slash debt by (394) million. Neil has also taken major strides to improve its ecommerce. The cost of acquiring new online customers reached a nine-year high in 2012 at $24.04 and has since been cut and half at an average of $10.44 according to Hochman Consultants. This major reduction in cost has proven very beneficial for Billabong.

Since Neil Fiske has taken over the companies financials have improved greatly. Due to how late Neil joined Billabong (September 2013) we will consider 2013s financials to have been before Neil's guidance. 2016-2014 are the years that Neil Fiske's strategies have been utilized.

Operating Income:

2016

2015

2014

2013

2012

Operating Income

15

(1)

(68)

(821)

(514)

% Change year over year

1600%

98%

92%

(60%)

(431%)

Year over year, Neil has overseen significant operating income growth since he began his role at Billabong. Operating income has grown over to 100% cumulatively over the last 3 years. The main cause of this income growth has been reduced operating expenses and a reduced cost of revenue. The reduced cost of revenue comes from the move that Fiske made to cut supplier costs. Operating expenses likewise have seen a significant reduction caused by the closing of inefficient stores.

EBIT:

2016

2015

2014

2013

2012

EBIT

(16)

(20)

(135)

(828)

(523)

% Change year over year

20%

85%

84%

(58%)

(512%)

The reason we used EBIT was to get a more fair representation of how the company is performing in its operations. If we look at net income, we see there are several years that Billabong has received tax credits. By using EBIT we can see a more fair representation of earnings growth of the company. We can see from this growth that since Neil has taken over the company, it has seen very significant growth year to year, and has seen 98% growth since 2013.

Inventory Turnover:

2016

2015

2014

2013

2012

Asset Turnover

2.91

2.70

2.49

2.33

2.26

% Change year over year

8%

7%

9%

7%

3%

Neil has been able to year after year improve Billabong's inventory turnover every year since he has joined Billabong. We have included the inventory turnover mainly because of the size of Billabong. Billabong is relatively small in terms of international retail. Improving inventory turnover has many implications. First, it means that Billabong is becoming more efficient. It also means that Billabong's market presence is growing as it sells more inventory. Days in inventory has also improved significantly meaning that Billabong's merchandise is selling more and more quickly and has become efficient in producing the correct amount of inventory. These are all good signs that Billabong is becoming more popular as it moves inventory quicker and more efficiently.

Promising Growth:

The major reason this stock has the potential for major growth is the untapped American market. Billabong has just recently begun to unlock the market potential in America. Already Billabong is the #1 brand in core specialty. One of the main reasons for the growth of is the implementation of ecommerce. Ecommerce sales in 2016 were up 52%. This shows a significant improvement in the crucial specialty wholesale channel, which is a lead indicator of brand strength with core consumer. Ecommerce sales in America were up 24.9% for the year. Ecommerce sales in Europe were up 160% for the year. As we see more growth in America and ecommerce sales, the brand will begin to see significant popularity as well.

Conclusion:

Billabong is poised for growth. With a new CEO we are beginning to see the positive effects of his new strategy. The growth already seen will continue for years to come. From a long-term standpoint now is the time to buy Billabong. We are seeing the turnaround that so many investors have already discussed and with Billabong's current growth the future looks very promising as retail spending continues to increase.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BLLAY, BLLAF over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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