Business news : Quiksilver's Q3 Net Slides on Charges

Quiksilver Group Inc., Family of brands

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

HUNTINGTON BEACH, Calif.--Sep. 5, 2013-- Quiksilver, Inc. (NYSE: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	%

Source: Quiksilver, Inc.

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

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