Quiksilver Narrows Fiscal Q2 Loss

The net loss a year ago included a $74.1 million non-cash goodwill impairment charge related to the company’s business in Australia and Japan. The pro-forma loss in the second quarter of fiscal 2012, which excludes $2.1 million of net after-tax asset impairments and restructuring charges, was $3.0 million, or 2 cents per share, compared to pro-forma income of $17.3 million, or 9 cents per share, in the second quarter of fiscal 2011, which excluded the $74.1 million non-cash goodwill impairment charge mentioned above. The decline in pro-forma income was primarily driven by gross margin contraction.

Robert B. McKnight, Jr., Chairman of the Board, Chief Executive Officer and President of Quiksilver, Inc., commented, “I’m proud of the Quiksilver team’s performance in the second quarter amid inconsistent economic conditions around the world. We continue to see examples of solid growth in our emerging markets while some established markets, particularly in Europe, have been impacted by regional economic uncertainty. Especially against this backdrop, we’re pleased to see that the improvements we’ve made to our retail presence continue to drive positive comparable store sales in all three regions. We’re also pleased to be turning the page on a challenging first half of the year that included a number of known headwinds that particularly affected our gross margins. We expect the second half of fiscal 2012 will compare favorably to last year as we anniversary higher input costs that we began to see in Q3 of 2011 and as we begin to deliver goods for our highly anticipated back-to-school season, particularly for DC. We also expect to reduce inventory levels in the second half as we anticipate a productive fall season and largely conclude the clearance activities we identified a quarter ago.”

Net revenues in the Americas increased 5 percent during the second quarter of fiscal 2012 to $221.0 million from $210.7 million in the second quarter of fiscal 2011. European net revenues decreased 6 percent during the second quarter of fiscal 2012 to $195.6 million from $206.9 million in the second quarter of fiscal 2011, and increased modestly in constant currency terms. Asia/Pacific net revenues increased 27 percent during the second quarter of fiscal 2012 to $74.0 million from $58.1 million in the second quarter of fiscal 2011, and were up 24 percent in constant currency. The Asia/Pacific revenue growth was significantly driven by improved performance in Japan where revenues in the second quarter of fiscal 2011 were substantially impacted by the earthquake and related tsunamis in the region. Please refer to the accompanying tables to better understand the impact of foreign currency exchange rates on revenue trends in the European and Asia/Pacific segments.

Gross margin in the second quarter was 49.2 percent of net revenues compared to 54.8 percent of net revenues in the second quarter of fiscal 2011. The gross margin contraction was principally driven by higher levels of clearance business, the timing of certain royalties, higher input costs, and the impact of foreign currency exchange rates. The company earned pro-forma Adjusted EBITDA of $39.4 million in the quarter compared to $62.1 million in the second quarter of fiscal 2011, with the decline largely driven by the contraction in gross margin mentioned above.

Q2 Highlights

    Revenues for each of the company’s three major brands – Quiksilver, Roxy and DC – grew in the second quarter compared to the same quarter a year ago.
    Second quarter same store sales in company-owned retail stores grew 6 percent on a global basis and were positive in each region.
    Revenues in the company’s Americas and Asia/Pacific regions grew in all three channels of distribution including wholesale, company-owned retail and E-Commerce.
    Quiksilver’s strong online sales momentum continued as the company’s second quarter E-Commerce revenues again demonstrated solid growth compared to the same quarter a year ago.
    Continuing the company’s investment in emerging markets, on May 1st Quiksilver expanded its majority ownership in its Brazilian entity to 80 percent. The company’s business in Brazil continues to demonstrate strong growth and solid profitability while generating annual revenues of greater than $50 million.
    DC continues to build its strong online following with nearly 9 million Facebook fans who collectively generated over 182 million impressions on the DC brand Facebook page during Q2. In addition, DC’s official YouTube film channel generated nearly 14 million views in the quarter.
    With two events remaining in the 2012 Association of Surfing Professionals season, Quiksilver team rider and brand ambassador Stephanie Gilmore, a four-time World Champion, and Roxy team rider Sally Fitzgibbons, world title runner-up the past two years, are locked in a tight battle for the women’s world surfing title after both have won two events during the current campaign. The next event on this year’s schedule is the Roxy Pro France in July.
    The Street League Skateboarding DC Pro Tour kicked off its 2012 season at the Sprint Center in Kansas City. 17-year-old phenom Nyjah Huston, the newest addition to the DC skate team, won the event in a dramatic duel with Bastien Salabanzi, the tour’s first European qualifier. The next stop on the DC Pro Tour is at the Citizens Business Bank Arena in Ontario, California, June 15-16.