Quiksilver, Inc. Reports Second Quarter Fiscal 2012 Financial Results

Quiksilver, Inc. (NYSE:ZQK) today announced operating results for the second fiscal quarter ended April 30, 2012. Revenues grew 3% to $492.2 million compared to $478.1 million in the second quarter of fiscal 2011 and grew 5% in constant currency. The net loss was $5.1 million, or $0.03 per share, compared to a net loss of $83.3 million, or $0.51 per share, in the second quarter of fiscal 2011. The net loss a year ago included a $74.1 million non-cash goodwill impairment charge related to the company’s business in Australia and Japan. The pro-forma loss in the second quarter of fiscal 2012, which excludes $2.1 million of net after-tax asset impairments and restructuring charges, was $3.0 million, or $0.02 per share, compared to pro-forma income of $17.3 million, or $0.09 per share, in the second quarter of fiscal 2011, which excluded the $74.1 million non-cash goodwill impairment charge mentioned above. The decline in pro-forma income was primarily driven by gross margin contraction. A reconciliation of GAAP results to pro-forma results is provided in the accompanying tables.

Robert B. McKnight, Jr., Chairman of the Board, Chief Executive Officer and President of Quiksilver, Inc., commented, “I’m proud of the Quiksilver team’s performance in the second quarter amid inconsistent economic conditions around the world. We continue to see examples of solid growth in our emerging markets while some established markets, particularly in Europe, have been impacted by regional economic uncertainty. Especially against this backdrop, we’re pleased to see that the improvements we’ve made to our retail presence continue to drive positive comparable store sales in all three regions. We’re also pleased to be turning the page on a challenging first half of the year that included a number of known headwinds that particularly affected our gross margins. We expect the second half of fiscal 2012 will compare favorably to last year as we anniversary higher input costs that we began to see in Q3 of 2011 and as we begin to deliver goods for our highly anticipated back-to-school season, particularly for DC. We also expect to reduce inventory levels in the second half as we anticipate a productive fall season and largely conclude the clearance activities we identified a quarter ago.”

Net revenues in the Americas increased 5% during the second quarter of fiscal 2012 to $221.0 million from $210.7 million in the second quarter of fiscal 2011. European net revenues decreased 6% during the second quarter of fiscal 2012 to $195.6 million from $206.9 million in the second quarter of fiscal 2011, and increased modestly in constant currency terms. Asia/Pacific net revenues increased 27% during the second quarter of fiscal 2012 to $74.0 million from $58.1 million in the second quarter of fiscal 2011, and were up 24% in constant currency. The Asia/Pacific revenue growth was significantly driven by improved performance in Japan where revenues in the second quarter of fiscal 2011 were substantially impacted by the earthquake and related tsunamis in the region. Please refer to the accompanying tables to better understand the impact of foreign currency exchange rates on revenue trends in the European and Asia/Pacific segments.

Gross margin in the second quarter was 49.2% of net revenues compared to 54.8% of net revenues in the second quarter of fiscal 2011. The gross margin contraction was principally driven by higher levels of clearance business, the timing of certain royalties, higher input costs, and the impact of foreign currency exchange rates. The company earned pro-forma Adjusted EBITDA of $39.4 million in the quarter compared to $62.1 million in the second quarter of fiscal 2011, with the decline largely driven by the contraction in gross margin mentioned above.

Q2 Highlights
  • Revenues for each of the company’s three major brands – Quiksilver, Roxy and DC – grew in the second quarter compared to the same quarter a year ago.
  • Second quarter same store sales in company-owned retail stores grew 6% on a global basis and were positive in each region.
  • Revenues in the company’s Americas and Asia/Pacific regions grew in all three channels of distribution including wholesale, company-owned retail and E-Commerce.
  • Quiksilver’s strong online sales momentum continued as the company’s second quarter E-Commerce revenues again demonstrated solid growth compared to the same quarter a year ago.
  • Continuing the company’s investment in emerging markets, on May 1 st Quiksilver expanded its majority ownership in its Brazilian entity to 80%. The company’s business in Brazil continues to demonstrate strong growth and solid profitability while generating annual revenues of greater than $50 million.
  • DC continues to build its strong online following with nearly 9 million Facebook fans who collectively generated over 182 million impressions on the DC brand Facebook page during Q2. In addition, DC’s official YouTube film channel generated nearly 14 million views in the quarter.
  • With two events remaining in the 2012 Association of Surfing Professionals season, Quiksilver team rider and brand ambassador Stephanie Gilmore, a four-time World Champion, and Roxy team rider Sally Fitzgibbons, world title runner-up the past two years, are locked in a tight battle for the women’s world surfing title after both have won two events during the current campaign. The next event on this year’s schedule is the Roxy Pro France in July.
  • The Street League Skateboarding DC Pro Tour kicked off its 2012 season at the Sprint Center in Kansas City. 17-year-old phenom Nyjah Huston, the newest addition to the DC skate team, won the event in a dramatic duel with Bastien Salabanzi, the tour’s first European qualifier. The next stop on the DC Pro Tour is at the Citizens Business Bank Arena in Ontario, California, June 15-16.

About Quiksilver:

Quiksilver, Inc. (NYSE:ZQK) is one of the world’s leading outdoor sports lifestyle companies. Quiksilver designs, produces and distributes a diversified mix of branded apparel, footwear and accessories. The company’s apparel and footwear brands, inspired by the passion for outdoor action sports, represent a casual lifestyle for young-minded people who connect with its boardriding culture and heritage. The company’s Quiksilver, Roxy, DC, Lib Tech and Hawk brands are synonymous with the heritage and culture of surfing, skateboarding and snowboarding. The company’s products are sold in over 90 countries in a wide range of distribution, including surf shops, skate shops, snow shops, its proprietary Boardriders Club shops and other company-owned retail stores, other specialty stores, select department stores and over the internet. Quiksilver’s corporate headquarters are in Huntington Beach, California.

Forward looking statements:

This press release contains forward-looking statements including but not limited to statements regarding the company’s anticipated second half performance, inventory levels and other future activities. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. Please refer to Quiksilver’s SEC filings for more information on the risk factors that could cause actual results to differ materially from expectations, and specifically the sections titled “Risk Factors” and “Forward-Looking Statements” in Quiksilver’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

NOTE: For further information about Quiksilver, Inc., you are invited to take a look at our world at www.quiksilver.com , www.roxy.com , www.dcshoes.com , www.lib-tech.com and www.hawkclothing.com .

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
   
Three Months Ended April 30,
In thousands, except per share amounts

2012
   

2011
 
Revenues, net $ 492,213 $ 478,093
Cost of goods sold   250,064     215,924  
Gross profit 242,149 262,169
 
Selling, general and administrative expense 224,010 216,748
Asset impairments   415     74,610  
 
Operating income (loss) 17,724 (29,189 )
 
Interest expense 15,585 15,096
Foreign currency gain   (609 )   (2,321 )
Income (loss) before provision for income taxes 2,748 (41,964 )
 
Provision for income taxes   7,155     39,690  
 
Net loss (4,407 ) (81,654 )
Less: net income attributable to non-controlling interest   (713 )   (1,671 )
Net loss attributable to Quiksilver, Inc. $ (5,120 ) $ (83,325 )
 
 
Net loss per share attributable to

Quiksilver, Inc.
$ (0.03 ) $ (0.51 )
 
Net loss per share attributable to

Quiksilver, Inc., assuming dilution
$ (0.03 ) $ (0.51 )
 
Weighted average common shares outstanding   163,953     162,268  
Weighted average common shares outstanding,

assuming dilution
  163,953     162,268  
 

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
   
Six Months Ended April 30,
In thousands, except per share amounts

2012
   

2011
 
Revenues, net $ 941,834 $ 904,543
Cost of goods sold   471,735     418,904  
Gross profit 470,099 485,639
 
Selling, general and administrative expense 454,425 427,184
Asset impairments   415     74,610  
 
Operating income (loss) 15,259 (16,155 )
 
Interest expense 30,630 44,064
Foreign currency gain   (2,459 )   (4,430 )
Loss before provision for income taxes (12,912 ) (55,789 )
 
Provision for income taxes   12,405     40,941  
 
Net loss (25,317 ) (96,730 )
Less: net income attributable to non-controlling interest   (2,408 )   (2,863 )
Net loss attributable to Quiksilver, Inc. $ (27,725 ) $ (99,593 )
 
Net loss per share attributable to

Quiksilver, Inc.
$ (0.17 ) $ (0.62 )
 
Net loss per share attributable to

Quiksilver, Inc., assuming dilution
$ (0.17 ) $ (0.62 )
 
Weighted average common shares outstanding   163,655     161,879  
Weighted average common shares outstanding,assuming dilution  

163,655
   

161,879
 
 

CONSOLIDATED BALANCE SHEETS (Unaudited)
       

In thousands

April 30,

April 30,

2012

2011
ASSETS
Current assets:
Cash and cash equivalents $ 79,177 $ 138,592

Trade accounts receivable, less allowancefor doubtful accounts of $41,995 (2012)and $51,772 (2011)

370,974

341,781
Other receivables 26,250 27,347
Income taxes receivable 111
Inventories 358,915 289,538
Deferred income taxes – short-term 17,752 24,426
Prepaid expenses and other current assets 31,697 31,270
Total current assets 884,765 853,065
 
Fixed assets, net 240,424 234,645
Intangibles, net 137,212 139,614
Goodwill 268,340 277,608
Other assets 54,948 52,658
Deferred income taxes – long-term 110,752 80,291
Total assets $ 1,696,441 $ 1,637,881
 

LIABILITIES & EQUITY
 
Current liabilities:
Lines of credit $ 13,517 $ 4,792
Accounts payable 190,647 178,559
Accrued liabilities 108,770 128,748
Current portion of long-term debt 22,840 5,824
Income taxes payable 3,068

Total current liabilities 338,842 317,923
 
Long-term debt 732,916 722,271
Other long-term liabilities 33,790 63,171
Total liabilities 1,105,548 1,103,365
 
Equity:
Common stock 1,684 1,677
Additional paid-in capital 544,809 521,148
Treasury stock (6,778) (6,778)
Accumulated deficit (60,290) (110,900)
Accumulated other comprehensive income 95,096 117,438
Total Quiksilver, Inc. stockholders’ equity 574,521 522,585
Non-controlling interest 16,372 11,931
Total equity 590,893 534,516
Total liabilities & equity $ 1,696,441 $ 1,637,881
 

Information related to operating segments is as follows (unaudited):
   
Three Months Ended April 30,
In thousands

2012
   

2011
 
Revenues, net:
Americas $ 220,975 $ 210,669
Europe 195,554 206,941
Asia/Pacific 74,026 58,140
Corporate operations   1,658     2,343  
$ 492,213   $ 478,093  
 
Gross Profit:
Americas $ 97,709 $ 103,501
Europe 108,997 128,332
Asia/Pacific 35,963 30,862
Corporate operations   (520 )   (526 )
$ 242,149   $ 262,169  
 
SG&A Expense:
Americas $ 88,407 $ 85,139
Europe 83,202 84,569
Asia/Pacific 40,002 37,817
Corporate operations   12,399     9,223  
$ 224,010   $ 216,748  
 
Asset Impairments:
Americas $ 415 $ 465
Europe

Asia/Pacific

74,145
Corporate operations  

   

 
$ 415   $ 74,610  
 
Operating Income (Loss):
Americas $ 8,887 $ 17,897
Europe 25,795 43,763
Asia/Pacific (4,039 ) (81,100 )
Corporate operations   (12,919 )   (9,749 )
$ 17,724   $ (29,189 )
 
 

Six Months Ended April 30,
In thousands

2012

2011
 
Revenues, net:
Americas $ 426,383 $ 404,459
Europe 364,428 372,140
Asia/Pacific 148,619 125,141
Corporate operations   2,404     2,803  
$ 941,834   $ 904,543  
 
Gross Profit:
Americas $ 185,637 $ 192,967
Europe 210,769 225,632
Asia/Pacific 74,103 67,495
Corporate operations   (410 )   (455 )
$ 470,099   $ 485,639  
 
SG&A Expense:
Americas $ 177,888 $ 168,133
Europe 169,298 164,986
Asia/Pacific 77,241 72,647
Corporate operations   29,998     21,418  
$ 454,425   $ 427,184  
 
Asset Impairments:
Americas $ 415 $ 465
Europe

Asia/Pacific

74,145
Corporate operations  

   

 
$ 415   $ 74,610  
 
Operating Income (Loss):
Americas $ 7,334 $ 24,369
Europe 41,471 60,646
Asia/Pacific (3,138 ) (79,297 )
Corporate operations   (30,408 )   (21,873 )
$ 15,259   $ (16,155 )
 

GAAP TO PRO-FORMA RECONCILIATION

(Unaudited)
   
Three Months Ended

April 30,
In thousands, except per share amounts

2012
       

2011
 
Net loss attributable to Quiksilver, Inc. $ (5,120 ) $ (83,325 )
Non-cash asset impairment charges, net of tax of $32 (2012) and $0 (2011) 383 74,610
Restructuring charges, net of tax of $0 (2012) and $0 (2011) 1,746
Effect of APAC tax valuation allowance     25,980  
Pro-forma (loss) income $ (2,991 ) $ 17,265  
 
Pro-forma (loss) income per share $ (0.02 ) $ 0.11  
 

Pro-forma (loss) income per share, assuming dilution
$ (0.02 ) $ 0.09  
 
Weighted average common shares outstanding   163,953     162,268  
Weighted average common shares outstanding, assuming dilution   163,953     182,037  
 
Six Months Ended

April 30,
In thousands, except per share amounts

2012

2011
 
Net loss attributable to Quiksilver, Inc. $ (27,725 ) $ (99,593 )
Non-cash asset impairment charges, net of tax of $32 (2012) and $0 (2011) 383 74,610
Restructuring charges (credits), net of tax of $0

(2012) and $0 (2011)
3,619 (2,118 )
Effect of APAC tax valuation allowance 25,980
Non-cash interest charges, net of tax of $0

(2012) and $4,618 (2011)
    10,691  
Pro-forma (loss) income $ (23,723 ) $ 9,570  
 
Pro-forma (loss) income per share $ (0.14 ) $ 0.06  
 

Pro-forma (loss) income per share, assuming dilution
$ (0.14 ) $ 0.05  
 
Weighted average common shares outstanding   163,655     161,879  
Weighted average common shares outstanding,

assuming dilution
  163,655     182,289  
 

ADJUSTED EBITDA and PRO-FORMA ADJUSTED EBITDA RECONCILIATION

(Unaudited)
   
Three Months Ended

April 30,
Amounts in thousands

2012
   

2011
 
Net loss attributable to Quiksilver, Inc. $ (5,120 ) $ (83,325 )
Provision for income taxes 7,155 39,690
Interest expense 15,585 15,096
Depreciation and amortization 14,163 13,470
Non-cash stock-based compensation expense 5,423 2,571
Non-cash asset impairments   415     74,610  
Adjusted EBITDA $ 37,621 $ 62,112
Restructuring charges   1,746    
Pro-forma Adjusted EBITDA $ 39,367   $ 62,112  
 
Six Months Ended

April 30,
Amounts in thousands

2012

2011
 
Net loss attributable to Quiksilver, Inc. $ (27,725 ) $ (99,593 )
Provision for income taxes 12,405 40,941
Interest expense 30,630 44,064
Depreciation and amortization 27,125 27,470
Non-cash stock-based compensation expense 12,400 4,981
Non-cash asset impairments   415     74,610  
Adjusted EBITDA $ 55,250 $ 92,473
Restructuring charges (credits)   3,619     (2,118 )
Pro-forma Adjusted EBITDA $ 58,869   $ 90,355  
 

Definition of Adjusted EBITDA:

Adjusted EBITDA is defined as net income (loss) attributable to Quiksilver, Inc. before (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) asset impairments. Adjusted EBITDA is not defined under generally accepted accounting principles (“GAAP”), and it may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA, along with other GAAP measures, as a measure of profitability because Adjusted EBITDA helps us to compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments and the effect of non-cash stock-based compensation expense. We believe EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility and the expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by us. We remove the effect of asset impairments from Adjusted EBITDA for the same reason that we remove depreciation and amortization as it is part of the impact of our asset base. Adjusted EBITDA has limitations as a profitability measure in that it does not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the effect of non-cash stock-based compensation expense and the effect of asset impairments.

SUPPLEMENTAL EXCHANGE RATE INFORMATION (Unaudited)

In order to better understand growth rates in our foreign operating segments, we make reference to constant currency. Constant currency reporting improves visibility into actual growth rates as it adjusts for the effect of changing foreign currency exchange rates from period to period. Constant currency is calculated by taking the ending foreign currency exchange rate (for balance sheet items) or the average foreign currency exchange rate (for income statement items) used in translation for the current period and applying that same rate to the prior period. Our European segment is translated into constant currency using Euros and our Asia/Pacific segment is translated into constant currency using Australian dollars as these are the primary functional currencies of each operating segment. As such, this methodology does not account for movements in individual currencies within a segment (for example, non-Euro currencies within our European segment and Japanese Yen within our Asia/Pacific segment). A constant currency translation methodology that accounts for movements in each individual currency could yield a different result compared to using only euros and Australian dollars. The following table presents revenues by segment in both historical currency and constant currency for the three months ended April 30, 2011 and 2012 (in thousands):

Historical currency (as reported)     Americas     Europe     Asia/Pacific     Corporate     Total
 
April 30, 2011 210,669 206,941 58,140 2,343 478,093
April 30, 2012 220,975 195,554 74,026 1,658 492,213
Percentage increase (decrease) 5% (6%) 27% 3%
 

Constant currency (current year exchange rates)
 
April 30, 2011 210,669 194,729 59,788 2,343 467,529
April 30, 2012 220,975 195,544 74,026 1,658 492,213
Percentage increase 5% 0% 24% 5%

Copyright Business Wire 2010

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