Rossignol Deal Makes Europe Quiksilver’s Largest Region; Quik Cuts Fiscal Q2 Guidance…

Quiksilver, Inc. reported a considerable top-line benefit from the Rossignol acquisition during its fiscal first quarter ended January 31 and was able to able to take full advantage of the “lost quarter” effect since Rossignol was not on a quarterly reporting schedule before the acquisition. Rossignol and Cleveland Golf contributed $192 million to the 2006 numbers. Quiksilver’s sales organic growth would have been just 1.8% for the quarter, or a gain of roughly 6% on a currency-neutral basis.

The integration initiatives between Rossignol and Quiksilver were said to be on track. The two companies will reduce the number of EU distribution centers to only two, down from 17, with one for apparel and one for equipment. Following their first full ski season with the Rossignol brand, ZQK management said that they “learned a lot about the industry and a lot about the people.”

Europe is now Quiksilver’s largest market, accounting for 48% of sales and taking the top spot from the Americas. Europe is also seeing the most upside from the integration between the two brands. Sales in the region nearly doubled in dollar terms, but the increase was even greater in constant dollar terms, jumping 118% for the period. The boost in sales was led primarily by Roxy and DC shoes. Men’s sales were only up 1% while women’s sales increased over 40%. Equipment sales accounted for $128 million in sales. Gross margins increased 10 basis points to 51.6%. SG&A expenses declined 320 basis points to 35.0%. This brought Quik’s European operating income to $43.3 million, a 189% increase.

Quiksilver sales in the Americas increased 38.5% during the first quarter to $220.7 million. The region now makes up roughly 41% of Quik’s international business. Gross margin in the region inched up 70 basis points to 39.8% of sales in spite of the lower gross margins associated with equipment sales. The increase in GM was driven primarily by increased owned-retail. SG&A expenses jumped 430 basis points to 38.0%. As a result, operating profit in the Americas dropped 54.0% to $4.0 million compared to $8.7 million.

Pre-season bookings are not yet complete, but so far Quiksilver expects winter and summer bookings to be at or above plan. On a constant dollar basis, Quiksilver management is expecting high-single-digit organic growth for 2006. Geographically, this increase breaks down to low-single-digit growth in the Americas, low-double-digit growth in Europe, and high-single-digit growth in Asia-Pacific.

Quiksilver management adjusted its quarterly guidance in order to reflect improved visibility on the timing of revenues and expenses for Rossignol and Cleveland Golf. While full-year guidance remains the same, Quiksilver’s second quarter sales will now range from $525 million to $530 million, a 2% reduction from prior guidance. Diluted EPS are now forecast at 6 cents per share versus prior guidance of 17 cents per share. Third quarter revenue guidance was increased by 1% to between $485 million and $490 million with diluted EPS of approximately 7 cents compared to prior guidance of 3 cents per share. Fourth quarter revenues should be $710 million to $715 million, 1% higher than previous guidance with diluted EPS in the range of approximately 56 cents to 57 cents, versus its prior guidance of 49 cents to 50 cents.

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