Rossignol’s Weak Winter Drags Down Quiksilver’s Fiscal First Quarter Results…

Quiksilver was a victim of the warm winter weather during the company’s fiscal first quarter with both Europe and U.S. winter sports sales declining in the double-digits. While the company gained some market share during the fiscal fourth quarter, the re-order business never materialized in Q1 and sales declined considerably. However, Quik’s core apparel businesses remain on-track and are generating top-line and bottom line growth in spite of some challenges in the Asia-Pacific region.

First-quarter revenues increased 2% to $553 million versus $540 million in Q1 last year. Quiksilver, Roxy, DC and other smaller apparel programs grew 17% to $409 million. Rossignol, the other winter sports equipment brands, and Cleveland Golf sales decreased 25% to $143 million. European hardgoods sales were said to be down in the 20% range, while U.S. was down in the 10% range, and Canada was flat to down 5%. The retailers located in the mountains were impacted less than urban locations. Europe accounts for roughly 75% of Rossignol’s winter business and 50% of their European accounts are larger sporting goods retailers in urban locations.

Consolidated gross margin during the first quarter was 46.8%, up 90 basis points from 45.9% in the prior year. Consolidated SG&A expenses were 43.3% for the quarter, up 430 basis points versus 39.0% the year before. SG&A expenses for equipment were essentially flat in dollars, but “increased significantly” as a percentage of sales.

Management also pointed out that the combined winter quarters – Q4 of fiscal 2006 and Q1 of fiscal 2007 – showed positive trends. The six months ending January 27 versus the six months ended January 2006 saw growth of 5% in hardgoods. For the same period, EPS was 53 cents versus 39 cents the year before, an increase of 36% for the two quarters combined. The company is estimating that, worldwide, there has been a 5% to 15% decline in snowboards, a 10% to 20% decline in alpine, and a 20% to 30% decline in the cross-country.

Management remains somewhat optimistic about the revenue opportunities for their golf business. Cleveland Golf is expected to grow slightly throughout the year, from roughly $160 million last year to $170 million in fiscal 2007.

The Americas segment sales were up 9% to $241 million for the quarter with strong growth in Quiksilver, Roxy and DC offset by a decrease in the Rossignol revenues. Apparel brands totaled $196 million, up 16% over Q1 last year. Equipment brand revenue totaled $44 million, down 14% from Q1 last year. The gross margin in the Americas increased 40 basis points to 40.2% versus 39.8% the year before. In the Americas, wholesale gross margins in the apparel businesses increased, but this was largely offset by the decline in winter sports gross margin this quarter. Americas SG&A was 41.0%, an increase of 300 basis points versus 38.0% last year.

European revenues decreased 3% to $254 million compared to $261 million last year. In local currency, European revenues decreased 11%. Apparel brands totaled $161 million, up 21% over Q1 last year. Equipment brand revenues totaled $93 million, down 27%. Strong growth in Quiksilver, Roxy and DC was offset by a decrease in Rossignol. European gross margin increased 170 basis points to 53.3% from 51.6%, primarily because of the industrial improvements at Rossignol. Equipment gross margin increased to be essentially consistent with apparel gross margins. European SG&A was 40.0%, up 500 basis points from 35.0% last year.

Sales in the Asia-Pacific segment were down 2% to $57.2 million compared to $58.3 million. In local currencies, revenues were down 9%. Apparel brands totaled $51 million, up 12% over Q1 last year. Equipment brand revenues totaled $6 million and were down 51%. Quiksilver and Roxy were the primary drivers of the apparel brand growth, offset by a decrease in Rossignol. Asia-Pacific gross margins increased 90 basis points to 45.1% from 44.2% primarily as a result of the decrease in the mix of winter sports equipment revenues, which produce lower gross margins than the apparel business. Apparel margins declined in the region. Asia-Pacific SG&A was up 690 basis points to 46.1% of sales versus 39.2% last year.

The company revised its fiscal 2007 annual revenue guidance down for the second time in one month. The company now expects roughly $2.45 billion in sales and fiscal 2007 annual diluted EPS of approximately 53 cents. Previously, after revising its guidance downwards in mid-February, Quiksilver expected revenues of $2.43 billion to $2.46 billion with diluted earnings per share of 75 cents to 78 cents. Now, Q2 revenues will be roughly $575 million with a loss per share of approximately four cents; Q3 revenues will be roughly $570 million with earnings per share of approximately five cents; Q4 revenues will be roughly $760 million with EPS of approximately 50 cents.