Quiksilver Reports Fiscal 2013 Third Quarter Financial Results

--Company Continues to Drive Efficiencies; SG&A Down Significantly--

Business Wire

HUNTINGTON BEACH, Calif.--(BUSINESS WIRE)--

Quiksilver, Inc. (ZQK) today announced operating results for the fiscal 2013 third quarter ended July 31, 2013.

“Our third quarter results reflect progress on our path toward improving operating efficiencies,” said Andy Mooney, President and Chief Executive Officer of Quiksilver, Inc. “Pro-forma adjusted EBITDA increased by $4 million, selling, general and administrative expenses were reduced by $9 million and we continued to right-size our organization worldwide. In addition, our EMEA region returned to sales growth, and our global e-commerce channel and emerging markets contributed meaningful revenue increases. While global net revenues were down for our DC and Quiksilver brands, we believe that the product development plans we have in place will deliver improved sales over time.

“We are pleased with the advancements on our Profit Improvement Plan. We completed assembling our senior management team, refinanced debt to extend maturities and increase liquidity, reduced headcount, narrowed our athletes and events roster, began re-engineering supply chain processes and continued to close underperforming retail stores. Our plan is on track and we remain confident that our initiatives will lead to improved efficiency and profitability.”

Please refer to the accompanying tables for a reconciliation of GAAP results to certain non-GAAP results, including pro-forma income/(loss), pro-forma income/(loss) per share attributable to Quiksilver, Inc., adjusted EBITDA and pro-forma adjusted EBITDA, for the third quarter and nine months ended July 31, 2013 and 2012, net revenues in historical and constant currency, and a definition of our emerging markets.

Fiscal 2013 Third Quarter Review:

The following comparisons refer to the third quarter of fiscal 2013 versus the third quarter of fiscal 2012.

Net revenues were $496 million compared with $512 million, and were down 3%, or $14 million, in constant currency.

  • Americas net revenues decreased 6% to $268 million from $286 million, and were down 6% in constant currency.
  • EMEA net revenues increased 6% to $164 million from $154 million, and were up 3% in constant currency.
  • APAC net revenues decreased 12% to $63 million from $72 million, and were down 1% in constant currency.

Gross margin was in line with last year at 49.4% of net revenues compared with 49.5%, with gross margin declines on DC brand sales in the Americas wholesale channel, largely offset by gross margin improvement in the EMEA wholesale channel.

SG&A decreased $9 million to $217 million from $226 million, primarily due to reduced expenses related to compensation, athletes and events, and administrative costs.

Non-cash asset impairments were $2.2 million compared with $0.1 million.

Foreign currency loss was $4.1 million versus foreign currency gain of $2.2 million.

Net income attributable to Quiksilver, Inc. was $2 million, or $0.01 per diluted share, compared with $13 million, or $0.07 per diluted share.

Pro-forma income, which excludes the after-tax impact of restructuring charges, non-cash asset impairments and non-cash interest charges from net income attributable to Quiksilver, Inc., was $18 million and $17 million, or $0.10 per diluted share in both years.

Pro-forma Adjusted EBITDA increased $4 million to $56 million from $52 million.

Fiscal 2013 Q3 Net Revenue Highlights:

Net revenues (in constant currency) by brand and channel for the third quarter of fiscal 2013 compared with the third quarter of fiscal 2012 were as follows.

Brands (constant currency):

  • Quiksilver decreased 10% to $172 million;
  • Roxy increased 1% to $130 million; and,
  • DC decreased 1% to $166 million.

Distribution channels (constant currency):

  • Wholesale revenues decreased 6% to $345 million;
  • Retail revenues increased 1% to $120 million. Third quarter same-store sales in company-owned retail stores increased 2% on a global basis. Company-owned retail stores totaled 562; and,
  • E-commerce revenues grew 33% to $31 million.

Emerging markets generated net revenue growth of 21% in constant currency.

About Quiksilver:

Quiksilver, Inc., one of the world’s leading outdoor sports lifestyle companies, designs, produces and distributes branded apparel, footwear and accessories. The company’s apparel and footwear brands, inspired by a passion for outdoor action sports, represent a casual lifestyle for young-minded people who connect with its boardriding culture and heritage. The company’s Quiksilver, Roxy, and DC brands have authentic roots and heritage in surf, snow and skate. The company’s products are sold in more than 90 countries in a wide range of distribution, including surf shops, skate shops, snow shops, its proprietary Boardriders Club shops and other company-owned retail stores, other specialty stores, select department stores and through various e-commerce channels. Quiksilver’s corporate headquarters are in Huntington Beach, California.

Forward-looking statements:

This press release contains forward-looking statements including, but not limited to, statements regarding management’s expectations for improved sales, efficiency and profitability in the future. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. Quiksilver undertakes no obligation to update these statements, which are made only as of the date of this press release. For the factors that could cause actual results to differ materially from expectations, please refer to Quiksilver’s SEC filings and specifically the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward-Looking Statements” in Quiksilver’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

NOTE: For further information about Quiksilver, Inc., please visit our website at www.quiksilverinc.com. We also invite you to explore our brand sites, www.quiksilver.com, www.roxy.com and www.dcshoes.com.

 
QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
         
 
Three months ended Nine months ended
In thousands, except per share amounts July 31, July 31,

2013

2012

2013

2012

 
Revenues, net $ 495,764 $ 512,439 $ 1,385,530 $ 1,454,273
Cost of goods sold   250,989     258,951     709,912     730,686  
 
Gross profit 244,775 253,488 675,618 723,587
 
Selling, general and administrative expense 216,579 225,788 660,042 680,213
Asset impairments   2,152     141     10,652     556  
 
Operating income 26,044 27,559 4,924 42,818
 
Interest expense 20,195 14,834 50,991 45,464
Foreign currency loss/(gain)   4,074     (2,242 )   4,629     (4,701 )
 
Income/(loss) before (benefit)/provision for income taxes 1,775 14,967 (50,696 ) 2,055
 
(Benefit)/provision for income taxes   (49 )   2,508     10,322     14,913  
 
Net income/(loss) 1,824 12,459 (61,018 ) (12,858 )
Less: net loss/(income) attributable to non-controlling interest   247     151     (435 )   (2,257 )
 
Net income/(loss) attributable to Quiksilver, Inc. $ 2,071   $ 12,610   $ (61,453 ) $ (15,115 )
 
Net income/(loss) per share attributable to Quiksilver, Inc.:
Basic $ 0.01 $ 0.08 $ (0.37 ) $ (0.09 )
Diluted $ 0.01 $ 0.07 $ (0.37 ) $ (0.09 )
 
Weighted average common shares outstanding:
Basic 167,624 164,518 166,735 163,930
Diluted 190,568 173,899 166,735 163,930
       
QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 
In thousands

July 31, 2013

July 31, 2012

 

ASSETS

Current Assets
Cash and cash equivalents $ 62,383 $ 81,903
Restricted cash 409,167 -
Trade accounts receivable (net of allowance of $59,593 and $54,586, respectively) 418,189 398,522
Other receivables 24,980 31,444
Income taxes receivable 2,779 -
Inventories 399,162 391,052
Deferred income taxes - short-term 28,086 14,691
Prepaid expenses and other current assets   35,819     32,678  
Total Current Assets 1,380,565 950,290
 
Fixed assets, net 227,997 233,842
Intangible assets, net 138,384 136,745
Goodwill 272,417 258,815
Other assets 54,561 48,267
Deferred income taxes - long-term   118,603     99,125  
Total Assets $ 2,192,527   $ 1,727,084  
 

LIABILITIES AND EQUITY

Current Liabilities
Lines of credit $ - $ 15,032
Accounts payable 238,311 233,523
Accrued liabilities 107,001 111,140
Current portion of long-term debt 43,153 44,640
Debt to be redeemed 409,167 -
Income taxes payable   -     3,652  
Total Current Liabilities 797,632 407,987
 
Long-term debt, net of current portion 807,094 723,772
Other long-term liabilities   34,976     32,249  
Total Liabilities 1,639,702 1,164,008
 
Equity
Common stock 1,712 1,687
Additional paid-in capital 567,601 539,124
Treasury stock (6,778 ) (6,778 )
Accumulated deficit (104,774 ) (47,680 )
Accumulated other comprehensive income   75,659     66,976  
Total Quiksilver, Inc. Stockholders' Equity 533,420 553,329
Non-controlling interest   19,405     9,747  
Total Equity   552,825     563,076  
 
Total Liabilities and Equity $ 2,192,527   $ 1,727,084  
       
QUIKSILVER, INC. AND SUBSIDIARIES
INFORMATION RELATED TO OPERATING SEGMENTS (UNAUDITED)
 
 
Three months ended Nine months ended
In thousands July 31, July 31,

2013

2012

2013

2012

Revenues, net:
Americas $ 267,997 $ 286,136 $ 682,984 $ 712,519
EMEA 163,796 154,076 500,160 518,504
APAC 63,356 71,623 200,132 220,242
Corporate operations   615     604     2,254     3,008  
495,764 512,439 1,385,530 1,454,273
 
Gross Profit:
Americas $ 114,327 $ 126,101 $ 287,882 $ 311,738
EMEA 97,161 88,136 284,011 298,905
APAC 32,432 39,258 103,343 113,361
Corporate operations   855     (7 )   382     (417 )
244,775 253,488 675,618 723,587
 
SG&A Expense:
Americas $ 78,752 $ 92,781 $ 251,825 $ 270,669
EMEA 88,845 80,862 253,055 250,160
APAC 33,881 37,747 108,843 114,988
Corporate operations   15,101     14,398     46,319     44,396  
216,579 225,788 660,042 680,213
 
Asset Impairments:
Americas $ 1,086 $ 141 $ 8,029 $ 556
EMEA 1,066 - 2,623 -
APAC - - - -
Corporate operations   -     -     -     -  
2,152 141 10,652 556
 
Operating Income/(Loss):
Americas $ 34,489 $ 33,179 $ 28,028 $ 40,513
EMEA 7,250 7,274 28,333 48,745
APAC (1,449 ) 1,511 (5,500 ) (1,627 )
Corporate operations   (14,246 )   (14,405 )   (45,937 )   (44,813 )
26,044 27,559 4,924 42,818

Definition of Emerging Markets:
The Company's references to emerging markets in this press release refer to net revenues generated in Brazil, Mexico, Korea, China, Indonesia, Taiwan and Russia, collectively.

         
QUIKSILVER, INC. AND SUBSIDIARIES
GAAP TO PRO-FORMA RECONCILIATION (UNAUDITED)
 
 
Three months ended Nine months ended
In thousands, except per share amounts July 31, July 31,

2013

2012

2013

2012

 
Net income/(loss) attributable to Quiksilver, Inc. $ 2,071 $ 12,610 $ (61,453 ) $ (15,115 )

Restructuring and other special charges, net of tax of $2,406, $334, $3,031, and $1,133, respectively

10,767 3,950 20,417 9,192
Non-cash asset impairments, net of tax of $49, $0, $741 and $32, respectively 2,103 141 9,911 524
Non-cash interest charges, net of tax of $0 for all periods   3,179   -   3,179     -  
 
Pro-forma income/(loss) 18,120 16,701 (27,946 ) (5,399 )
 
Pro-forma income/(loss) per share attributable to Quiksilver, Inc.:
Basic $ 0.11 $ 0.10 $ (0.17 ) $ (0.03 )
Diluted $ 0.10 $ 0.10 $ (0.17 ) $ (0.03 )
 
Weighted average common shares outstanding:
Basic 167,624 164,518 166,735 163,930
Diluted 190,568 173,899 166,735 163,930
             
QUIKSILVER, INC. AND SUBSIDIARIES
ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)
 
 
Three months ended Nine months ended
In thousands July 31, July 31,

2013

2012

2013

2012

 
Net income/(loss) attributable to Quiksilver, Inc. $ 2,071 $ 12,610 $ (61,453 ) $ (15,115 )
(Benefit)/provision for income taxes (49 ) 2,508 10,322 14,913
Interest expense 20,195 14,834 50,991 45,464
Depreciation and amortization 12,991 12,312

 

38,018 39,437
Non-cash stock-based compensation expense 4,972 4,872 16,195 17,272
Non-cash asset impairments   2,152     141   10,652     556  
 
Adjusted EBITDA 42,332 47,277 64,725 102,527
 
Restructuring and other special charges   13,293     4,283   23,131     10,325  
 
Pro-forma Adjusted EBITDA 55,625 51,560 87,856 112,852
 

Definition of Adjusted EBITDA and Pro-forma Adjusted EBITDA:

Adjusted EBITDA is defined as net income/(loss) attributable to Quiksilver, Inc. before (i) interest expense, (ii) (benefit)/provision for income taxes, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) non-cash asset impairments. Pro-forma Adjusted EBITDA is defined as Adjusted EBITDA excluding restructuring and other special charges (including, but not limited to, reserves and other charges associated with restructuring activities, non-operating charges for gains and losses on lease exit activities, as well as severance and other employee termination costs as a result of downsizing and reorganization). Adjusted EBITDA and Pro-forma Adjusted EBITDA are not defined under generally accepted accounting principles (“GAAP”), and may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA and Pro-forma Adjusted EBITDA, along with other GAAP measures, as measures of profitability because Adjusted EBITDA and Pro-forma Adjusted EBITDA compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments, the effect of non-cash stock-based compensation expense and restructuring and other special charges. We believe EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility and the expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by us. We remove the effect of asset impairments from Adjusted EBITDA for the same reason that we remove depreciation and amortization as it is part of the non-cash impact of our asset base. We also remove from Pro-forma Adjusted EBITDA the impact of certain reserves and charges associated with restructuring activities, non-operating charges for gains and losses on lease exit activities, as well as severance and other employee termination costs as these costs are not typically part of normal, day-to-day operations. Adjusted EBITDA and Pro-forma Adjusted EBITDA have limitations as profitability measures in that they do not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the effect of non-cash stock-based compensation expense, the effect of asset impairments and the effect of restructuring and other special charges.

SUPPLEMENTAL EXCHANGE RATE INFORMATION
(Unaudited)

In order to better understand growth rates in our operating segments, we make reference to constant currency. Constant currency reporting improves visibility into actual growth rates as it adjusts for the effect of changing foreign currency exchange rates from period to period. Constant currency is calculated by taking the ending foreign currency exchange rate (for balance sheet items) or the average foreign currency exchange rate (for income statement items) used in translation for the current period and applying that same rate to the prior period. The following table presents revenues by segment in both historical currency and constant currency for the third quarter ended July 31, 2013 and 2012 (in thousands):

                 

Americas

EMEA

APAC

Corporate

Total

Historical currency (as reported):
July 31, 2013 $ 267,997 $ 163,796 $ 63,356 $ 615 $ 495,764
July 31, 2012 286,136 154,076 71,623 604 512,439
Percentage (decrease)/increase -6 % 6 % -12 % -3 %
 
Constant currency (current year exchange rates):
July 31, 2013 267,997 163,796 63,356 615 495,764
July 31, 2012 285,570 159,760 64,039 622 509,991
Percentage (decrease)/increase -6 % 3 % -1 % -3 %

Contact:
Quiksilver, Inc.
Robert Jaffe
Investor Relations
424-288-4098
zqk@quiksilver.com

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