Quiksilver Management Discusses Q2 2012 Results - Earnings Call Transcript

Quiksilver (ZQK)

Q2 2012 Earnings Call

June 07, 2012 4:30 pm ET

Executives

Bruce Thomas - Vice President of Investor Relations

Robert B. McKnight - Co-Founder, Executive Chairman, Chief Executive Officer and President

Richard J. Shields - Chief Financial Officer

Robert Owen Colby - President of Americas Region

Craig Stevenson - Chief Operating Officer and Global Brand President

Analysts

Taposh Bari - Jefferies & Company, Inc., Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Carla Casella - JP Morgan Chase & Co, Research Division

Diana Katz - Lazard Capital Markets LLC, Research Division

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Kevin Coyne - Goldman Sachs Group Inc., Research Division

Christian Buss - Crédit Suisse AG, Research Division

Michael Karapetian - Janney Montgomery Scott LLC, Research Division

Adam F. Engebretson - Piper Jaffray Companies, Research Division

Presentation

Operator

Please stand by. Good afternoon, ladies and gentlemen. Thank you for standing by. [Operator Instructions] I would like to remind everyone that this conference is being recorded. I'd now like to introduce Bruce Thomas, Quiksilver's Vice President of Investor Relations, who will chair this afternoon's call.

Bruce Thomas

Thanks, operator. Good afternoon, everyone, and welcome to the Quiksilver's Second Quarter Fiscal 2012 Earnings Conference Call.

Our speakers today are: Bob McKnight, our Chairman, President and Chief Executive Officer; and Richard Shields, our Chief Financial Officer. Also joining us are: Craig Stevenson, our Global Brand President and the Chief Operating Officer of Quiksilver, Inc.; and Rob Colby, our Americas Region President.

Before we begin, I'd like to briefly review the company's Safe Harbor statement. Throughout our call today, items may be discussed that are not based on historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding Quiksilver's business outlook and future performance constitute forward-looking statements, and results could differ materially from those stated or implied by these forward-looking statements as a result of risks, uncertainties and other factors, including those identified in our filings with the Securities and Exchange Commission, specifically under the section titled Risk Factors in our most recent annual report on Form 10-K and in our quarterly reports on Form 10-Q.

All forward-looking statements made on this call speak only as of today's date, and the company undertakes no duty to update any forward-looking statements. In addition, this presentation may contain references to non-GAAP financial information. A reconciliation of non-GAAP financial information to the most directly comparable GAAP financial information is included in our press release, which can be found in electronic form on our website at www.quiksilverinc.com.

With that out of the way, I'd like to turn the call over to Bob McKnight.

Robert B. McKnight

Thanks, Bruce, and good afternoon, everyone, and thank for joining us today for our Second Quarter Conference Call. I'd like to begin by welcoming our newest member of our senior management team, our new Chief Financial Officer, Richard Shields. We're delighted that Rich has joined the Quiksilver family. And even though he's only been with us less than a month, he hit the ground running, and we're looking forward to the many valuable contributions that Rich will make to the future success of Quiksilver. So welcome.

Turning now to our business in Q2. I'm proud of the Quiksilver team's performance in the second quarter amidst inconsistent economic conditions around the world. While some of our emerging markets have shown strong progress, some established markets, particularly in Europe, have been impacted by regional economic uncertainty. Despite the pressure on our business caused by this uncertainty, our brands have held up well, and we're pleased to have grown our revenues across all 3 brands in all 3 regions and in each of our channels of distribution. This was, however, a challenging quarter for our business from a margin perspective. As we communicated back in March, we entered Q2 knowing that a number of factors would negatively impact margins in the quarter. And as the quarter progressed, a few of those dynamics became more impactful than we expected. Importantly, some of those headwinds diminished as we move into the second half of our fiscal year.

Let me turn now to the high level financial highlights for the second quarter. Revenues in Q2 were up 5% when compared to last year in constant currency reflecting that we have broad appeal for all 3 of our brands, Quiksilver, Roxy and DC, solid growth in our emerging markets, revenue growth and positive comparable store sales in each of our geographic regions and continued strong growth in our e-commerce channel.

Gross margins declined to 49.2% of sales. Our 2012 internal plan anticipated a number of headwinds that would adversely impact our Q2 year-over-year gross margin comparison. Our actual margins were, however, somewhat below our plan. SG&A of $224 million was up approximately $7 million compared to the second quarter a year ago. The resulting pro forma adjusted EBITDA in the second quarter was $39 million, which, as we anticipated, was well below last year's second quarter results.

Rich will take you through a more detailed look at our financial performance in a few moments. But first, I'd like to provide a brief update on our 3 flagship brands. Let's start with Quiksilver.

Revenues in Q2 for the Quiksilver brand grew 4% compared to the same quarter a year ago in constant currency. This growth was fueled by strong sales of warmer weather goods including boardshorts, Amphibians, walk shorts, hats and tank tops as temperatures began to rise in connection with the arrival of spring. During the quarter, we stepped up our collaborations with a major North American sports links, product for additional NFL teams, shipped into wholesale marketplace, and sell-through was exceptionally strong in tourist destinations. NBA boardshorts will follow with some teams introduced this summer and a deal with the NHL has been recently signed, and Canadian NHL team boardshorts will be shipped in Canada this fall. We're also expanding the program into Australian football leagues. These collaborations allow Quiksilver to reach new customers, new accounts and new channels of distribution while delivering authentic products that are designed using already existing resources.

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