Quiksilver, Inc. sees the recent acquisition of Rossignol providing the company with a tremendous growth vehicle that is expected to contribute “several hundreds of millions of dollars” in upside. That forecast is in addition to the potential of the non-Rossignol brands in the acquired portfolio that includes the Dynastar, Look, Lange, and Cleveland Golf brands, where management sees another half a billion dollars in opportunity.

Reported company growth for the year and fourth quarter ended October 31 were certainly helped by the inclusion of the Rossignol group numbers for the first time, which added roughly $214.5 million to the top line for the quarter and year. The Rossignol deal closed on July 31. Excluding the Rossi effect, ZQK revenues would have still increased more than 20% for the fourth quarter and nearly 24% for the fiscal year.

Quiksilver Chairman and CEO Bob McKnight said that controlling all of the significant markets of the company’s brands was “definitely key” to ensuring the total business reaches its potential on a global scale. He cited a number of other factors that contributed to growth for the year, including the Tony Hawk licensing deal with Kohl’s, the buy-back of the Quiksilver licenses in South Africa, purchasing a controlling interest in the Belgium business, the success of a joint venture in Brazil, and the acquisition of the DC Shoes distributors in the U.K. and Canada. He also pointed to a significant effort to expand into Eastern Europe where they are working to acquire the Poland business while seeking a partner for Russia.

The growth of the owned-retail business was also a key driver for the year, an area McKnight said was a focus for tightening of control. The company ended the year with 457 retail stores, including the 11 stores picked up through the acquisition of the Surfection chain in Australia. At year-end, Quik had 212 company-owned stores, with 70 in the Americas, 104 in Europe, and 38 in Asia/Pacific.

One area that did suffer was the gross margin line, which declined 260 basis points for the quarter to 45.1% of sales in fiscal Q4 from 47.7% of sales in the year-ago period. The culprit is clearly the hardgoods-centric nature of the Rossignol business, a reality Quiksilver plans to rectify through rapid expansion of the apparel opportunity for the acquired brands. Company president, Bernard Mariette, announced they had hired Henri Aveni to run Rossignol apparel.

The Rossi margin was 40% of sales in the fourth quarter. The decline in gross margin was offset a bit by a 120 basis point improvement in the SG&A line. Still, operating margins dipped 140 basis points as the hardgoods factor outweighed the upside from growth in owned-retail.

Including Rossignol, total reported net sales for the quarter jumped nearly 82.0% to $637.4 million from $350.3 million in the fiscal fourth quarter last year.
Consolidated net income for the period increased 35.1% to $33.6 million, or 27 cents per diluted share, compared to $24.9 million, or 20 cents per diluted share, in the prior-year period.

By region, net revenues in the Americas increased 83.8% in Q4 to $288.9 million from $157.2 million in Q4 last year. Men’s sales were up 34% to $117 million and the women’s business rose 23% to $79 million. The hardgoods business, which now includes the total Rossignol and Cleveland businesses, including apparel and footwear, contributed $93 million tot the top line.

Gross margins in the Americas dipped 90 basis points to 40.6% of sales, while operating profit jumped 150% to $30.3 million, thanks to a 360 basis point decline in SG&A expenses as a percent of sales. The GM decline was attributed to the increase in hardgoods sales as well as an increase in lower margin in-season sales.

European net revenues, measured in U.S. dollars, increased 101% for fourth quarter to $269.9 million from $134.4 million in the fourth quarter of fiscal 2004. The FX rate had less of an effect in the quarter, with revenues measured in Euros growing 103% for the period. In USD, men’s sales in Europe rose 6% for the fourth quarter to $103 million and women’s sales increased 23% to $45 million. Hardgoods sales totaled $122 million in Europe.

Gross margins in Europe were down 530 basis points to 49.1% of sales, but a 290 basis point improvement in SG&A expenses contributed to a 68.6% increase in operating profit to $35.5 million. Hardgoods, which made up about 45% of sales in the region, had a much heavier impact on the GM line.

Asia/Pacific net revenues increased 37.2% to $77.0 million in fiscal Q4 from $56.1 million in the fourth quarter of fiscal 2004. A/P revenues rose 29% when measured in Australian dollars. The region got a $6 million bump from hardgoods. Gross margins for the region declined 140 basis points to 48.8% of sales and SG&A climbed 740 basis points, resulting in a 17.9% decline in operating profit to $10.1 million for the period.

As for the integration process, Mariette said they continue to work to eliminate redundancies in IT and finance, while streamlining the management structure. He said they expect the back office and marketing changes alone to account for $10 million of the estimated $25 million in savings that are expected to flow to the bottom line within three years.

Quik also added a new president and a design director for the DC brand and have tapped former Converse, Nike, Oakley, and LA Gear sales exec Jim Stroesser to run the footwear business for Quiksilver and Roxy.

Inventories at year-end, excluding the impact of the acquired businesses, grew about 5% from year-end last year. The inventory line was comprised of $188.5 million in existing business inventories and $197.9 million in inventories from the acquired Rossignol and Cleveland Golf businesses.

Quiksilver, Inc. 
Fiscal 2005 Full-Year Results
(in $ millions) 2005 2004 Change
Total Sales $1,781 $1,267 40.6%
Americas $843.7 $616.8 36.8%
Europe $712.3 $496.3 43.5%
Asia Pacific $220.9 $148.7 48.5%
Gross Margin 45.4% 45.6% -20 bps
SG&A % 35.2% 35.2% flat
Net Income $107.1  $81.4  +31.6%
Diluted EPS 86¢  68¢  +26.5%
Acct Rec* $599.5  $281.3  +113%
Inventory* $386.4  $179.6  +115%
*At year-end