Quiksilver Inc. posted a steep loss in its fiscal fourth quarter ended
October 31 due to massive write-downs of its hardgoods business
acquired in the 2005 Rossignol acquisition. More surprisingly, the
company also predicted a “small loss” for Q1 due to continued hard
lines weakness.  A $110.9 million fourth quarter loss reflects
total charges of $170.7 million, primarily due to the write-down of
goodwill of the Rossignol equipment operation since the 2005
acquisition, including the sale of Cleveland Golf.  The equipment
contraction came despite a “very strong performance” in its core
apparel and footwear brands.

“The charge we have taken in the quarter against goodwill is indicative
of the challenges we have had since last year's disastrous ski season,”
said Bob McKnight, Jr., chairman and CEO, on a conference call with
analysts.  “This is particularly frustrating since our apparel and
footwear businesses have continued to perform at a very high level this
year and look to remain on that track for next year as well.”

Excluding the impairment charges and eliminating Cleveland Golf from
results, Quiksilver earned $65.9 million, or 51 cents a share, in Q4
against earnings of $65.8 million, or 51 cents, a year ago. Results
were in line with expectations.

By region, Europe showed an operating loss of $72.1 million in the
quarter after $119.7 million in impairment charges against a profit of
$64.3 million a year ago.  In the Americas, operating income slid
72% to $10.7 million after $35.5 million in write-downs; and
Asia/Pacific operating income declined 80.9% to $3.2 million after
$11.1 million in write-downs.

Quiksilver continues to actively take steps to reduce its hardlines
exposure. Last week, it completed the sale of Cleveland Golf to SRI
Sports for $132.5 million. Through the sale of the golf brand,
Quiksilver reduced its hardgoods position from over 25% of revenue in
2006 to close to 14% in 2008, while reducing debt by over $100
million.  Quiksilver continues to evaluate how to further mitigate
its hardgoods problems, but is determined to keep Rossignol, because of
its potential as a full lifestyle brand.

“Rossignol has a great long-term opportunity and we have the right
infrastructure and skill set to make this happen,” said Bernard
Mariette, Quiksilver president, on the call. “Some of our other brands
such as Dynastar, Look and Lange also have lifestyle opportunity
associated with them, but we have to focus on Rossignol.”

Beginning with the fiscal first quarter 2008, Quiksilver will report a
separate hardgoods segment that will highlight the revenue to provide
increased transparency into those operations. Rossignol apparel will
continue to be reported in regional segments.

Q4 revenues grew 6.5% to $779.2 million from $731.8 million. Sales
increased 15.3% to $334.8 million in Americas and 2.5% to $350.8
million in Europe, but fell 5.4% to $91.9 million in Asia/Pacific.

Apparel sales grew 22.3% to 589.3 million. Sales grew 25.7% to $278.2
in Americas and 28.9% to $229.4 in Europe, but slid 1% to $81.7 in
Asia/Pacific.

The softlines side saw a continued strong performance across all core
brands. Although it did not break out Q4 results, management noted that
revenues across Quiksilver, Roxy and DC grew by 20% for the full year
to $2 billion and operating earnings by 22%.

Although both brands saw apparel strength, footwear was particularly
strong for the quarter.  Quiksilver footwear sales grew 25% to $50
million for the year; and, Roxy footwear increased more than 20% to
almost $90 million.  McKnight said DC “had a fantastic year.”

While DC footwear is growing “at a fast pace,” apparel is growing
faster and management expects to double DC's apparel sales over the
next three years. DC's apparel and accessories are now more than 35% of
the total brand's mix.  Rossignol has also launched its summer
apparel collection and is developing a whole new winter lifestyle line.

On the equipment side, revenues dropped 24.2% to $188.2 million. Sales
fell 18% to $56.6 million in the Americas, 26.2% to $121.4 million in
Europe, and 30% to $10.3 million in Asia Pacific.

The equipment business outperformed the market and picked up market
share, but both abnormally warm global weather last year and rains in
Europe contributed to a challenging year.

Regarding retail, Quiksilver opened 138 company-owned and -licensed
shops worldwide during the quarter, bringing the total to 669 shops.
Retail accounts for 18% of sales.

Fourth quarter gross margins improved 90 basis points to 46.0% of
sales. Apparel gross margin improved 300 basis points to 44.7%, while
equipment contracted by 600 basis points to 36.9%.  Part of the
reason hardgoods margins were under pressure is strength in the
Euro.  Hardgoods sourcing is Euro-based, but about a third of
Rossignol's sales are outside Europe.  Production costs were also
somewhat higher than expected due to transition costs associated with
the move of production to a factory in Spain.  SG&A margin
increased to 33.4% of sales from 30.6% due to the contraction in volume
of the equipment business, as well as growth in owned-retail and
expansion into new territories.

Looking to Q1, Quiksilver forecast a “small loss” due to the continued
margin pressures on the hardgoods side.  Although strength in
apparel enabled Quiksilver to offset this margin weakness in Q4, lower
seasonal volumes in apparel won't enable Quiksilver to do the same in
Q1.

Quiksilver said it expects consolidated revenues to increase 10% to
$2.426 billion for the fiscal 2008 full year.  Sales are expected
to grow at the same clip.  Over the next three years, the company
expects Quiksilver brand sales to grow at a rate of between 6% to 10%;
Roxy brand sales between 8% to 12%; and DC to grow between 15% and 25%.

Full year EPS is expected to reach 70 cents a share, a growth of
approximately 22% from its pro forma earnings of 57 cents in fiscal
2007. Operating margin on its apparel business is expected to reach
approximately 10%, an increase of between 50 and 100 basis points. It
expects to cut its operating loss in equipment to $20 million from $40
million.

Margins are also expected to benefit as the company reduces the number
of factories it sources from, rationalizes the amount of styles it
produces, and significantly increases the percentage of purchasing
sourced in-house.

Management also still expects to reap the benefit of the Rossignol
acquisition as the ski market improves with more seasonal weather to
help “unlock the lifestyle potential” for the Rossignol brand.

“We believe that Rossignol can be a true global powerhouse brand in the
outdoor lifestyle market,” said McKnight. “It has achieved tremendous
recognition that transcends this narrow range of categories. This is
the key to our investment in this business.”