Quiksilver, Inc. has seen its quarterly sales performance outpace futures bookings so much that the company will cease giving backlog information and instead provide sales estimates by quarter. For instance, the company said that summer bookings growth was 8% at the end of last quarter, but the company posted a 23% sales gain for the current quarter. Spring bookings at fiscal year-end were up 6% and sales grew 34% for the first quarter.
The growth in the current quarter, coupled with the closing of the DC Shoes acquisition, has prompted the company to raise sales and earnings guidance for the balance of the year. ZQK beat street Q2 EPS estimates by a penny, its “10th consecutive quarter of out-performance”. Currency exchange rate benefits boosted sales by nine percentage points in the quarter.
Revenues in the Americas grew 16.5%, due primarily to the growth in the womens business, which increased 28% to $82 million. Mens sales were up 5% to $66 million and hardgoods sales were approximately $500k. The company opened two retail stores in the Americas in the quarter.
Gross margin in the region declined 200 basis points to 41.1% of sales, but a reduction in SG&A expenses as a percentage of sales helped boost operating income 7.4% to $18.9 million for the quarter. Inventory in the Americas decreased 8% to $76 million.
European sales jumped 29% in the quarter, or a 14% increase when measured in Euros. Growth in the womens business outpaced mens growth by more than a two to one margin. Womens revenues increased 53% when measured in the reporting U.S. dollar currency to $39 million, while mens sales increased 22% to $101 million. Gross margins in Europe improved 160 basis points to 49.2% of sales, which helped the region post a 24.0% increase in operating income for the period. European inventories grew 35% to $37 million when measured in U.S. dollars. Europe opened three new company-owned stores and seven licensed stores in the second quarter.
Asia/Pacific revenues increased 30% in Q2, but were up just 3.0% when measured in Australian dollars. Gross margins jumped 420 basis points to 48.9% in the quarter, due primarily to the stronger A$ and company-owned retail. Quik opened one store in Japan in Q2 and its China JV opened the Shanghai store during the period. Operating income was fairly flat at $3.8 million. A/P inventories were up 29% to $14 million.
Total Quiksilver inventories were up just 2.0% measured in constant currencies. Management said they were “spooked” by spring/summer bookings and “probably under-played the season a little bit”.
They said that sell through has been “very strong” and that they saw definite strengthening in the mens business, prompting them to ship fall orders early. They described inventories at retail as “exceptionally clean”.
Marty Samuels, president of the Mens business and Quiksilver Retail, said that Silver Edition is the fastest-growing business they have right now on the mens side. The Hawk business in the U.S. was said to be “pretty flat”. He said Hawk was doing better in Europe and the Japan licensee “continues to do well with it”.
On the retail side, Samuels said their comp store sales gains were “consistent with the types of increases reported by the successful youth specialty chains”. That would appear to indicate comp gains in the mid- to high-teens.
Steve Tully, president of Womens and the Americas, said that the Fidra golf line is “good, still small, still incubating” and was thrilled to be getting the TV play out of their partnership with Ernie Els.
The company operated 145 company-owned stores at quarter-end and had 155 shops operated by licensees. They also had 89 shops in territories where the earned royalties only.
DC Shoes is expected to add about $60 million in sales in the back half of the year, split evenly between both quarters. Quiksilver has already consolidated DCs financial functions and distribution into ZQKs operation. Management said plans are under way to “consolidate logistics further”.
Quiksilver now estimates fiscal Q3 diluted EPS in the 28 cents to 29 cents per share on sales in the $300 million to $305 million range. The company sees 20% growth in the Americas in the back half, while Europe is estimated to post growth in the “high-teen range” and Asia-Pacific is forecasting an increase in the 20% neighborhood. ZQK sees full-year diluted EPS in the $1.27 to $1.29 per share range on sales between $1.194 billion and $1.204 billion.