Quiksilver, Inc. experienced a tougher fiscal first quarter than it initially expected as the general retail softness combined with a tough snow sports environment.  As a result, the company decreased its fiscal first quarter expectations to a loss of 9 cents to 12 cents per share, down from earlier guidance of a small loss.  In addition, following the successful sale of Cleveland Golf in December 2007, ZQK is reviewing alternatives with respect to its other equipment businesses, including possible sales, and has hired JP Morgan to assist with this process.

Joe Scirocco, EVP and CFO, noted that “Essentially, two things happened. In the ski business, the anticipated reorders did not materialize at the level that we thought they would.  And in the retail environment both in Europe and in the U.S., business was a little softer than we expected. These are pretty significant because in the [fiscal] first quarter, between retail and hard goods business, it accounts for somewhere between 40% and 50% of our volume.”


However, Scirocco also said that the start to this ski season is going especially well as far as the snow is concerned. However, the retailers are using the boost to clear out last year’s inventory and to move into a position of liquidity, rather than to re-order new product.


For the company as a whole, it expects to reach 13% operating margins in the next couple of years through a global sourcing initiative.


On a brand basis, DC is seeing particular success through brand extensions.  Apparel and accessories at DC now account for about 34% of the business. International now is also an important part of the DC business, with Europe accounting for approximately 24% of sales.


The company launched Roxy fragrance, while also establishing Quiksilver Women’s, although the first shipments come out this fall.


Looking ahead, Roxy should grow from its $750 million annual sales to $1 billion within a few years at a high-single-digit or low-double-digit growth rate. ZQK expects continued growth in DC somewhere in the 20% range over the next few years.


The company feels that its hardgoods business, which includes Rossignol, should normalize by winter of '08.  Management said they have a plan for 2008 to reduce the hardgoods losses by approximately 50%, halving last year’s $40 million loss.  Management said that ZQK’s fiscal calendar was no help with the hardgoods loss, as the fiscal year ends in the very middle of the ski season. 


Currently, approximately 40% of ZQK’s working capital is tied up in the hardgoods business.


Looking at owned-retail, the company now has 613 branded shops, owning approximately 400 of those and licensing the rest. In a move to conserve capital for 2008, ZQK will cut back to some degree the initial retail operations plans.


In another move to conserve resources, the company will expand the operations of its Asian sourcing office from handling 10% to 15% of total volume currently, to 40%-plus in the next couple of years.


Finally, ZQK is targeting reductions of $20 million in annualized savings in the current year in SG&A expenses, or approximately 100 basis points in the apparel business. Longer term, management sees opportunities to leverage SG&A in terms of the maturity of the company’s stores, particularly if it slows down on the openings.