Quiksilver, Inc. (NYSE:ZQK) (the "Company") today announced financial results for its fiscal 2015 second quarter ended April 30, 2015.

Pierre Agnes, Chief Executive Officer, stated, "Our second quarter performance came in largely as expected with revenues adjusted for currencies and licensed categories essentially stabilized. We also reduced operating expenses, which allowed the Company to meet its EBITDA goal for the quarter on a constant currency basis. We are encouraged by customer feedback on our Spring '15 product offering across all brands. In addition, as our order book for the Fall '15 product line continues to develop, we are confident in our ability to drive revenue growth in the medium term. Overall, we are quite happy with our product lines."

Mr. Agnes continued, "Currency exchange fluctuations are a major headwind this year, with a negative impact of roughly thirty million dollars to the initial EBITDA guidance for fiscal 2015. Also, we are still working on execution issues that are going to impact our business in the second half of this year, particularly in North America where sales and margins are affected by poor deliveries and an evolving distribution channel strategy. The Company had expected significant profit improvement in North America in the back half of the year when it provided guidance for fiscal 2015. We are still confident this improvement can be achieved, but not in that time period. We have a number of important steps underway that we believe will take our Company forward, including recommitting to our roots while at the same time enabling us to execute our business more effectively. We have reorganized the Company and have a tremendously talented team in place that is focused on delivering significant and sustainable EBITDA growth in 2016 and the following years."

Please refer to the accompanying tables for a reconciliation of GAAP results from continuing operations to certain non-GAAP results from continuing operations, including pro-forma adjusted EBITDA; a definition of the Company's emerging markets; and changes in net revenue on a constant currency continuing category basis, which adjusts prior period net revenues for changes in currency exchange rates and excludes prior period wholesale net revenues for product categories now licensed to third parties, as well as removes current period licensing net revenues for the same licensed product categories, in order to provide comparability of net revenues between periods.

Second Quarter Review:

The following comparisons refer to results of continuing operations for the second quarter of fiscal 2015 versus the second quarter of fiscal 2014.

Net revenues, as reported, were $333 million compared with $397 million. Net revenues were down 2%, or $5 million, on a constant currency continuing category basis.
  • Americas net revenues, as reported, were $160 million compared with $186 million. Americas net revenues were down 4%, or $6 million, on a constant currency continuing category basis.
  • EMEA net revenues, as reported, were $116 million compared with $151 million. EMEA net revenues were down 3%, or $4 million, on a constant currency continuing category basis.
  • APAC net revenues, as reported, were $56 million compared with $60 million. APAC net revenues were up 7%, or $4 million, on a constant currency continuing category basis.

Net revenues from emerging markets, as reported, were $45 million compared with $51 million. Net revenues from emerging markets were up 10%, or $4 million, on a constant currency continuing category basis.

Gross margin decreased to 47.1% from 48.9%. The 180 basis point decline in gross margin reflects higher discounting and freight expenses due to late deliveries, and unfavorable currency exchange rates, mainly in Europe, partially offset by the favorable impact of a higher percentage of sales mix in direct to consumer channels.

SG&A expense decreased $33 million to $175 million from $208 million. The decrease was primarily driven by currency exchange rates, reduced bad debt and employee compensation expenses.

Pro-forma Adjusted EBITDA was $7 million compared with $13 million.

Net loss from continuing operations attributable to Quiksilver, Inc. was $38 million, or $0.22 per share, in the second quarter of each of fiscal 2015 and 2014.

Cash and availability on credit facilities at the end of the quarter was $118 million.

Q2 Net Revenue Highlights:

Net revenues from continuing operations by brand, sales channel and product group for the second quarter of fiscal 2015 compared with the second quarter of fiscal 2014 were as follows.

Brands:

  • Quiksilver net revenues, as reported, were $139 million compared with $167 million. Quiksilver net revenues were down 1%, or $1 million, on a constant currency continuing category basis;
  • Roxy net revenues, as reported, were $105 million compared with $120 million. Roxy net revenues were up 1%, or $1 million, on a constant currency continuing category basis;
  • DC net revenues, as reported, were $81 million compared with $103 million. DC net revenues were down 9%, or $8 million, on a constant currency continuing category basis.

Distribution channels:
  • Wholesale net revenues, as reported, were $230 million compared with $286 million. Wholesale net revenues were down 4%, or $9 million, on a constant currency continuing category basis;
  • Retail net revenues, as reported, were $84 million compared with $90 million. Retail net revenues were up 6% on a constant currency continuing category basis. Same-store sales in company-owned retail stores decreased 3%. Company-owned retail stores totaled 719 at the end of the fiscal 2015 second quarter compared with 658 at the end of the fiscal 2014 second quarter;
  • E-commerce net revenues, as reported, were $16 million compared with $19 million. E-commerce net revenues were down 6%, or $1 million, on a constant currency continuing category basis.

Product groups:
  • Apparel and accessories net revenues, as reported, were $232 million compared with $283 million. Apparel and accessories net revenues were down 2%, or $5 million, on a constant currency continuing category basis;
  • Footwear net revenues were $101 million compared with $114 million. Footwear net revenues were flat on a constant currency continuing category basis.

Outlook:

Based on management's current assessment of the business, the Company is rescinding its previously stated financial guidance for the fiscal year 2015. The Company may choose to reinstate the policy of providing forward guidance in the future, but will not be providing an outlook for fiscal 2015 at this time.

About Quiksilver:

Quiksilver, Inc., one of the world's leading outdoor sports lifestyle companies, designs, produces and distributes branded apparel, footwear and accessories. The Company's apparel and footwear brands, inspired by a 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, and DC brands have authentic roots and heritage in surf, snow and skate. The Company's products are sold in more than 100 countries in a wide range of distribution, including surf shops, skate shops, snow shops, its proprietary Boardriders shops and other company-owned retail stores, other specialty stores, select department stores and through various e-commerce channels. The Company'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 management's expectations for the Company's net revenues, and EBITDA in future periods. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. The Company undertakes no obligation to update these statements, which are made only as of the date of this press release. For the factors that could cause actual results to differ materially from expectations, please refer to the Company's SEC filings and specifically the sections titled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Forward-Looking Statements" in the Company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

NOTE: For further information about Quiksilver, Inc., please visit our website at www.quiksilverinc.com . We also invite you to explore our brand sites, www.quiksilver.com , www.roxy.com and www.dcshoes.com .
               
QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
Second quarter ended First half ended
April 30, April 30,
  2015     2014     2015     2014  
In thousands, except per share amounts
Revenues, net $ 333,052 $ 396,941 $ 673,906 $ 791,851
Cost of goods sold   176,254     202,651     347,664     396,921  
 
Gross profit 156,798 194,290 326,242 394,930
 
Selling, general and administrative expense 175,179 207,921 345,683 411,705
Asset impairments   703     4,583     958     5,466  
 
Operating loss (19,084 ) (18,214 ) (20,399 ) (22,241 )
 
Interest expense 18,040 19,222 36,442 38,642
Foreign currency (gain)/loss   (3,258 )   887     (2,601 )   3,715  
 
Loss before provision/(benefit) for income taxes (33,866 ) (38,323 ) (54,240 ) (64,598 )
 
Provision/(Benefit) for income taxes   3,728     (443 )   1,644     (4,828 )
 
Loss from continuing operations (37,594 ) (37,880 ) (55,884 ) (59,770 )
(Loss)/income from discontinued operations, net of tax   -     (22,981 )   6,732     14,636  
 
Net loss (37,594 ) (60,861 ) (49,152 ) (45,134 )
Less: net loss/(income) attributable to non-controlling interest   -     7,737     788     8,201  
 
Net loss attributable to Quiksilver, Inc. $ (37,594 ) $ (53,124 ) $ (48,364 ) $ (36,933 )
 
Loss per share from continuing operations attributable to Quiksilver, Inc.:
Basic $ (0.22 ) $ (0.22 ) $ (0.33 ) $ (0.35 )
Diluted $ (0.22 ) $ (0.22 ) $ (0.33 ) $ (0.35 )
 
(Loss)/income per share from discontinued operations attributable to Quiksilver, Inc.:
Basic $ - $ (0.09 ) $ 0.04 $ 0.13
Diluted $ - $ (0.09 ) $ 0.04 $ 0.13
 
Weighted average common shares outstanding:
Basic 171,343 170,475 171,188 170,105
Diluted 171,343 170,475 171,188 170,105
 
Amounts attributable to Quiksilver, Inc.:
Loss from continuing operations $ (37,594 ) $ (37,880 ) $ (55,884 ) $ (59,409 )
(Loss)/income from discontinued operations, net of tax   -     (15,244 )   7,520     22,476  
Net loss $ (37,594 ) $ (53,124 ) $ (48,364 ) $ (36,933 )
 
       
QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
April 30, 2015 October 31, 2014
In thousands

ASSETS
Current Assets
Cash and cash equivalents $ 48,078 $ 46,664
Restricted cash 4,449 4,687
Trade accounts receivable (net of allowance of $52,940 and $63,991, respectively) 251,947 311,014
Other receivables 42,800 40,847
Income taxes receivable 494 -
Inventories 291,248 284,517
Deferred income taxes 4,838 4,926
Prepaid expenses and other current assets 30,425 28,080
Current assets held for sale   -     20,265  
Total Current Assets 674,279 741,000
 
Restricted cash 2,868 16,514
Fixed assets, net 189,673 213,768
Intangible assets, net 138,038 135,510
Goodwill 80,102 80,622
Other assets 39,450 47,086
Deferred income taxes - long-term 14,182 16,088
Non-current assets held for sale   -     5,394  
TOTAL ASSETS $ 1,138,592   $ 1,255,982  

LIABILITIES AND EQUITY/(DEFICIT)
Current Liabilities
Lines of credit $ 33,037 $ 32,929
Accounts payable 149,968 168,307
Accrued liabilities 105,446 112,701
Current portion of long-term debt 2,248 2,432
Income taxes payable - 1,124
Deferred income taxes 19,167 19,628
Liabilities related to assets held for sale   -     13,266  
Total Current Liabilities 309,866 350,387
 
Long-term debt, net of current portion 785,482 793,229
Other long-term liabilities 35,747 39,342
Deferred income taxes - long-term   22,130     16,790  
Total Liabilities 1,153,225 1,199,748
 
Equity/(Deficit)
Common stock 1,743 1,741
Additional paid-in capital 591,656 589,032
Treasury stock (6,778 ) (6,778 )
Accumulated deficit (635,771 ) (587,407 )
Accumulated other comprehensive income   34,517     57,288  
Total Quiksilver, Inc. Stockholders' Equity/(Deficit) (14,633 ) 53,876
Non-controlling interest   -     2,358  
Total Equity/(Deficit)   (14,633 )   56,234  
 
TOTAL LIABILITIES AND EQUITY/(DEFICIT) $ 1,138,592   $ 1,255,982  
 
               
QUIKSILVER, INC. AND SUBSIDIARIES
ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)
 
Second quarter ended First half ended
April 30, April 30,
  2015     2014     2015     2014  
In thousands

Loss from continuing operations attributable to Quiksilver, Inc.
$ (37,594 ) $ (37,880 ) $ (55,884 ) $ (59,409 )
Provision/(benefit) for income taxes 3,728 (443 ) 1,644 (4,828 )
Interest expense 18,040 19,222 36,442 38,642
Depreciation and amortization 9,701 14,273 20,452 24,818
Non-cash stock-based compensation expense 483 6,525 2,252 11,588
Non-cash asset impairments, net   703     4,583     958     5,466  
 
Adjusted EBITDA (4,939 ) 6,280 5,864 16,277
 
Restructuring and other special charges   11,648     6,382     10,948     12,830  
 
Pro-forma Adjusted EBITDA 6,709 12,662 16,812 29,107
 

Definition of Adjusted EBITDA and Pro-forma Adjusted EBITDA:

Adjusted EBITDA is defined as net loss from continuing operations attributable to Quiksilver, Inc. before (i) interest expense, (ii) (benefit)/provision for income taxes, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) non-cash asset impairments. Pro-forma Adjusted EBITDA is defined as Adjusted EBITDA excluding restructuring and other special charges (including, but not limited to, reserves and other charges associated with restructuring activities, non-operating charges for gains and losses on lease exit activities, as well as severance and other employee termination costs as a result of downsizing and reorganization). Adjusted EBITDA and Pro-forma Adjusted EBITDA are not defined under generally accepted accounting principles ("GAAP"), and may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA and Pro-forma Adjusted EBITDA, along with other GAAP measures, as measures of profitability because Adjusted EBITDA and Pro-forma Adjusted EBITDA 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, the effect of non-cash stock-based compensation expense and restructuring and other special charges. 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 non-cash impact of our asset base. We also remove from Pro-forma Adjusted EBITDA the impact of certain reserves and charges associated with restructuring activities, non-operating charges for gains and losses on lease exit activities, as well as severance and other employee termination costs as these costs are not typically part of normal, day-to-day operations. Adjusted EBITDA and Pro-forma Adjusted EBITDA have limitations as profitability measures in that they do 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, the effect of asset impairments and the effect of restructuring and other special charges.

Definition of Emerging Markets:

The Company's references to emerging markets in this press release refer to net revenues generated in Brazil, Mexico, Korea, China, Indonesia, Taiwan and Russia, collectively.

CONSTANT CURRENCY CONTINUING CATEGORY NET REVENUE RECONCILIATION

We make reference to net revenues on a "constant currency continuing category" basis in order to provide additional comparable information with regard to changes in net revenues. Constant currency continuing category reporting provides valuable comparisons of net revenues as it adjusts for the effect of changes in foreign currency exchange rates and for the impact on our wholesale channel of transitioning certain product categories to a third-party licensing model. Constant currency is calculated by taking the average foreign currency exchange rate for the current period and applying that same rate to the comparable prior year period. Continuing category impacts are determined by removing the comparable prior period net revenues generated from product categories which are now licensed as well as removing current period licensing net revenues generated from those same licensed product categories.

The following table presents net revenues from continuing operations by segment, brand, channel and product group on both an as reported basis and a comparable constant currency continuing category basis for the second quarters ended April 30, 2015 and 2014 (in thousands):
    Fiscal 2015 Net Revenues As Reported (GAAP)     Less Fiscal 2015 Licensing Revenue from Licensed Product Categories     Fiscal 2015 Comparable Net Revenues (Non-GAAP)     Fiscal 2014 Net Revenues As Reported (GAAP)     Impact of Fiscal 2015 Foreign Exchange Rates on Fiscal 2014 Net Revenues     Less Fiscal 2014 Net Revenues from Licensed Product Categories     Fiscal 2014 Constant Currency Continuing Category Net Revenues (Non-GAAP)     %¿ Fiscal 2015 GAAP Net Revenues vs Fiscal 2014 GAAP Net Revenues     %¿ Fiscal 2015 Non-GAAP Net Revenues vs Fiscal 2014 Non-GAAP Net Revenues

By Region:
Americas 159,987 (1,226 ) 158,761 186,247 (7,316 ) (14,202 ) 164,729 -14 % -4 %
EMEA 115,792 - 115,792 150,884 (30,908 ) (59 ) 119,917 -23 % -3 %
APAC 56,276 - 56,276 59,721 (7,107 ) (150 ) 52,464 -6 % 7 %
Corporate 997     -       997 89     (33 )     -       56 1020 % 1680 %
333,052     (1,226 )     331,826 396,941     (45,364 )     (14,411 )     337,166 -16 % -2 %
 

By Brand:
Quiksilver 138,701 (153 ) 138,548 166,643 (20,461 ) (6,860 ) 139,322 -17 % -1 %
Roxy 104,747 (970 ) 103,777 120,091 (12,338 ) (5,353 ) 102,400 -13 % 1 %
DC 80,896 (103 ) 80,793 102,909 (11,506 ) (2,198 ) 89,205 -21 % -9 %
Other 8,708     -       8,708 7,298     (1,059 )     -       6,239 19 % 40 %
333,052     (1,226 )     331,826 396,941     (45,364 )     (14,411 )     337,166 -16 % -2 %
 

By Channel:
Wholesale 229,837 - 229,837 286,205 (33,413 ) (14,411 ) 238,381 -20 % -4 %
Retail 83,523 - 83,523 89,510 (10,516 ) - 78,994 -7 % 6 %
E-commerce 16,149 - 16,149 18,551 (1,435 ) - 17,116 -13 % -6 %
Licensing/Royalties 3,543     (1,226 )     2,317 2,675     -       -       2,675 32 % -13 %
333,052     (1,226 )     331,826 396,941     (45,364 )     (14,411 )     337,166 -16 % -2 %
 

By Product Group:
Apparel & Accessories 231,579 (1,226 ) 230,353 282,547 (32,605 ) (14,411 ) 235,531 -18 % -2 %
Footwear 101,473     -       101,473 114,394     (12,759 )     -       101,635 -11 % 0 %
333,052     (1,226 )     331,826 396,941     (45,364 )     (14,411 )     337,166 -16 %     -2 %
 

The following table presents net revenues from continuing operations by segment, brand, channel and product group on both an as reported basis and a comparable constant currency continuing category basis for the first halves ended April 30, 2015 and 2014 (in thousands):
                                   
Fiscal 2015 Net Revenues As Reported (GAAP) Less Fiscal 2015 Licensing Revenue from Licensed Product Categories Fiscal 2015 Comparable Net Revenues (Non-GAAP) Fiscal 2014 Net Revenues As Reported (GAAP) Impact of Fiscal 2015 Foreign Exchange Rates on Fiscal 2014 Net Revenues Less Fiscal 2014 Net Revenues from Licensed Product Categories Fiscal 2014 Constant Currency Continuing Category Net Revenues (Non-GAAP) %¿ Fiscal 2015 GAAP Net Revenues vs Fiscal 2014 GAAP Net Revenues %¿ Fiscal 2015 Non-GAAP Net Revenues vs Fiscal 2014 Non-GAAP Net Revenues

By Region:
Americas 307,754 (1,703 ) 306,051 361,710 (11,308 ) (24,927 ) 325,475 -15 % -6 %
EMEA 241,605 - 241,605 300,280 (51,127 ) (123 ) 249,030 -20 % -3 %
APAC 122,874 - 122,874 129,596 (12,686 ) (215 ) 116,695 -5 % 5 %
Corporate 1,673     -       1,673 265     (50 )     -       215 531 % 678 %
673,906     (1,703 )     672,203 791,851     (75,171 )     (25,264 )     691,416 -15 % -3 %
 

By Brand:
Quiksilver 279,289 (223 ) 279,066 330,487 (33,264 ) (12,382 ) 284,841 -15 % -2 %
Roxy 205,164 (1,314 ) 203,850 238,118 (20,710 ) (8,131 ) 209,277 -14 % -3 %
DC 170,110 (166 ) 169,944 205,899 (19,121 ) (4,751 ) 182,027 -17 % -7 %
Other 19,343     -       19,343 17,347     (2,076 )     -       15,271 12 % 27 %
673,906     (1,703 )     672,203 791,851     (75,171 )     (25,264 )     691,416 -15 % -3 %
 

By Channel:
Wholesale 422,202 - 422,202 524,901 (50,082 ) (25,264 ) 449,555 -20 % -6 %
Retail 202,647 - 202,647 220,078 (22,432 ) - 197,646 -8 % 3 %
E-commerce 42,810 - 42,810 42,025 (2,657 ) - 39,368 2 % 9 %
Licensing/Royalties 6,247     (1,703 )     4,544 4,847     -       -       4,847 29 % -6 %
673,906     (1,703 )     672,203 791,851     (75,171 )     (25,264 )     691,416 -15 % -3 %
 

By Product Group:
Apparel & Accessories 482,941 (1,703 ) 481,238 588,954 (57,022 ) (25,264 ) 506,668 -18 % -5 %
Footwear 190,965     -       190,965 202,897     (18,149 )     -       184,748 -6 % 3 %
673,906     (1,703 )     672,203 791,851     (75,171 )     (25,264 )     691,416 -15 %     -3 %

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