Quiksilver, Inc. management feels they have achieved the goals they set for the integration of DC Shoes as they start to realize some benefits in the footwear business and start to turn their attention to injecting some Quik magic into the DC sportswear business. DC Shoes accounted for roughly a third, or almost $35 million, of the growth for the fiscal second quarter ended April 30.

The progress here apparently gives the Quiksilver team the energy to turn their attention to a much bigger project – the integration of Rossignol into the family of brands. The primary goal for Rossignol, based on comments made by Bernard Mariette, president of Quiksilver, is to evolve it into an outdoor lifestyle brand.

Quiksilver is apparently taking the same positioning with their stable of brands that the VF Outdoor group has taken, a positioning that is most apparent with the launch in Europe of a new retail format called Andaska that was described as a cross between Sport Chalet and Patagonia. Chairman and CEO Bob McKnight said the name came from a combination of Andes and Alaska and could one day become a brand in itself. The stores will feature the Quiksilver and Rossignol brands and focus on everything from ski and snowboard to backpacking, camping, and mountaineering to mountain biking and surf. The store will also have a Quiksilver shop attached that will be much more in line with the existing Boardriders concept. They expect 50% of sales to come from Quiksilver and Rossignol brands. They have rolled out three different formats and will test until they find the right formula. The formats include a 10,000 sf store, a 3,000 sf store, and a 1,500 sf model. When asked about moving the concept to the U.S., McKnight replied, “Not yet, but… you never know.”

While the Rossi deal isn’t quite complete — they still expect to close the deal next month — work has already begun to inject some hardlines expertise into existing ZQK brands. The first notable move is the launch of Roxy skis, bindings, and poles for the fall season. While the company acknowledges that the buying season for these goods is over, they do see an opportunity to sell the goods in their owned-retail stores and have also gotten the thumbs up from retailers they hope to launch the line with for fall. They will also launch the line in Europe, particularly in France and the U.K.

Revenues in the Americas grew 34.1% in Q2, due primarily to the growth in the men’s business, which was heavily influenced by the inclusion of DC Shoes. Men’s sales were up 47% to $97 million and women’s sales increased 24% to $102 million. Gross margin in the region declined 260 basis points to 38.5% of sales. The inclusion of footwear and increased hardlines sales are generally seen as the culprit here. SG&A expenses increased 70 bps to 28.3% of sales. Operating income growth in the Americas did not match revenue gains in the region, rising 23.8% to $23.4 million. Inventory in the Americas increased 38% to $105 million.

European revenues were up 25.7% in the quarter, or an 18% increase when measured in Euros. Growth in the women’s business outpaced men’s growth again, increasing 30% to $51 million for the period, or nearly 29% of the business. The men’s business increased 24% to $126 million. Gross margins in Europe improved 220 basis points to 51.4% of sales, offset a bit by a 170 bps increase in SG&A expenses to 32.3% of sales. The region posted a 28.4% increase in operating income for the period. European inventories grew about 30% to $48 million when measured in U.S. dollars.

Asia Pacific revenues increased 52% in Q2, and were up 47% when measured on a constant dollar basis. Gross margins improved 180 basis points to 50.7% of sales in the quarter, due primarily to the stronger A$ and company-owned retail. Operating income jumped 65.4% to $6.3 million. Asia Pacific inventories were up 79% to $25 million.

Total Quiksilver inventories were still up 36% measured in constant currencies, or up approximately 21% excluding the impact of FX rate and the inclusion of DC Shoes. About $16 million of the total number was attributed to DC Shoes. Management said that the inventories in the Americas were operating too lean last year after an 8% decrease at the end of the Q2 period. They said about $10 million in incremental inventory was needed this year to support growth. They also said inventories in Asia Pacific were increased roughly $5 million to support rapid growth in Japan and Indonesia.


>>> The meshing of the message between Action Sports, Winter Sports, and Outdoor looks to be a prevailing theme for a number of companies now. Should we be surprised? When the ski season wanes, we find many key outdoor execs surfing, and it’s always tougher to reach people at the Patagonia offices when the surf is good…

Quiksilver, Inc. 
Fiscal Second Quarter Results
(in $ millions) 2005 2004 Change
Total Sales $426.90 $322.60 32.30%
Americas $199.20 $148.50 34.10%
Europe $176.30 $140.30 25.70%
Asia Pacific $50.30 $33.20 51.60%
Gross Profit % 45.30% 45.60% -30 bps
SG&A % 32.6% 32.4% +20 bps
Net Income $34.7  $27.8  +24.7%
Diluted EPS 28¢  24¢  +16.7%
Inven. @ Qtr–End $177.8  $127.3 +39.7%