Quiksilver Announces Fiscal 2015 First-Quarter Financial Results

Company Reports Pro-forma Adjusted EBITDA of $10 Million, Provides Outlook for Second Quarter

 

HUNTINGTON BEACH, Calif.-- Mar. 17, 2015-- Quiksilver, Inc. (NYSE:ZQK) today announced financial results for the fiscal 2015 first quarter ended January 31, 2015.

“We are encouraged by our first quarter performance,” said Andy Mooney, chairman and chief executive officer of Quiksilver, Inc. “Revenues adjusted for currencies and licensed categories essentially stabilized in Q1, and operating expenses decreased by $20 million versus the prior year in constant currencies.

“Customer feedback on our Spring ‘15 product offering, across all brands, has been positive. Our order book for the Fall ‘15 product line continues to develop, and we are confident in our ability to generate revenue increases going forward.”

Please refer to the accompanying tables for a reconciliation of GAAP results from continuing operations to certain non-GAAP results from continuing operations, including pro-forma adjusted EBITDA; a definition of the Company’s emerging markets; and changes in net revenue on a constant currency continuing category basis, which adjusts prior period net revenues for changes in currency exchange rates and excludes prior period wholesale net revenues for product categories now licensed to third parties, as well as removes current period licensing net revenues for the same licensed product categories, in order to provide comparability of net revenues between periods.

First Quarter Review:
 
The following comparisons refer to results of continuing operations for the first quarter of fiscal 2015 versus the first quarter of fiscal 2014.

Net revenues, as reported, were $341 million compared with $395 million. Net revenues were down 4%, or $14 million, on a constant currency continuing category basis.

• Americas net revenues, as reported, were $148 million compared with $175 million. Americas net revenues were down 8%, or $13 million, on constant currency continuing category basis.
• EMEA net revenues, as reported, were $126 million compared with $149 million. EMEA net revenues were down 3%, or $3 million, on constant currency continuing category basis.
• APAC net revenues, as reported, were $67 million compared with $70 million. APAC net revenues were up 4%, or $2 million, on constant currency continuing category basis.

Gross margin decreased to 49.7% from 50.8%. The 110 basis point decline in gross margin reflects higher discounting, the unfavorable impact of currency exchange rates, and higher freight and distribution costs related to the West coast ports labor dispute, partially offset by the favorable impact of higher sales mix in direct to consumer channels.

SG&A expense decreased $33 million to $171 million from $204 million. The decrease was primarily driven by currency exchange rates, reduced employee compensation, rent, distribution and legal expenses.

Pro-forma Adjusted EBITDA was $10 million compared with $16 million.

Net loss from continuing operations attributable to Quiksilver, Inc. was $18 million, or $0.11 per share, compared with $22 million, or $0.13 per share.

Cash and availability on credit facilities at the end of the quarter was $141 million.
 
Q1 Net Revenue Highlights:
 
Net revenues from continuing operations by brand, sales channel and product group for the first quarter of fiscal 2015 compared with the first quarter of fiscal 2014 were as follows.

Brands:

• Quiksilver net revenues, as reported, were $141 million compared with $164 million. Quiksilver net revenues were down 3%, or $5 million, on a constant currency continuing category basis;
• Roxy net revenues, as reported, were $100 million compared with $118 million. Roxy net revenues were down 6%, or $7 million, on a constant currency continuing category basis; and
• DC net revenues, as reported, were $89 million compared with $103 million. DC net revenues were down 4%, or $4 million, on a constant currency continuing category basis.

Distribution channels:

• Wholesale net revenues, as reported, were $192 million compared with $239 million. Wholesale net revenues were down 9%, or $19 million, on a constant currency continuing category basis;
• Retail net revenues, as reported, were $119 million compared with $131 million. Retail net revenues were flat on a constant currency continuing category basis. Same-store sales in company-owned retail stores decreased 3%. Company-owned retail stores totaled 713 at the end of the fiscal 2015 first quarter compared with 645 at the end of fiscal 2014 first quarter; and,
• E-commerce net revenues, as reported, were $27 million compared with $23 million. E-commerce net revenues were up 20%, or $4 million, on a constant currency continuing category basis.

Product groups:

• Apparel and accessories net revenues, as reported, were $251 million compared with $306 million. Apparel and accessories net revenues were down 7%, or $20 million, on a constant currency continuing category basis; and
• Footwear net revenues were $89 million compared with $88 million. Footwear net revenues were up 8%, or $6 million, on a constant currency continuing category basis.

Net revenues from emerging markets, as reported, were $54 million compared with $53 million. Net revenues from emerging markets were up 20%, or $9 million, on a constant currency continuing category basis.

Audit Committee Investigation:
 
As previously announced, the release of our first quarter financial results was postponed due to an Audit Committee investigation of a revenue cut-off issue.

In late February, the Company's management discovered a deficiency in the Company's internal controls related to quarter end revenue cut-off, whereby accurate information regarding actual shipment routing and customer delivery was not consistently maintained in the Company's ERP system in accordance with its procedures. As a result, certain net revenues recorded in the prior period did not meet the criteria for revenue recognition at that time but instead should have been recognized in the following quarter.

Management brought the issue to the attention of the Audit Committee of the Company's Board of Directors, which then commenced an investigation, with the assistance of independent legal counsel engaged by the Audit Committee and outside forensic accountants, into the scope and causes of this revenue cut-off issue and reported the results of that investigation to the full Board and management. The Company analyzed the impact of this revenue cut-off issue and concluded that it did not have a material impact on its previously issued financial statements.

As a result of the investigation, in presenting the Company's first quarter 2015 financial results, net revenues for the first quarter of fiscal 2014 have been revised to reflect a $2 million increase.

Outlook:
 
The Company updated its fiscal 2015 guidance for continuing operations to incorporate February 2015 currency exchange rates and provided guidance for its fiscal 2015 second quarter, as follows:
Fiscal 2015 second quarter net revenues are expected to be approximately $340 million, which is flat to last year’s second quarter on a constant currency continuing category basis. Gross margins are expected to be approximately 48.0%. SG&A, excluding any restructuring and special charges, is expected to be approximately $175 million. Pro-forma Adjusted EBITDA is expected to be approximately $8 million.

Fiscal year 2015 net revenues are expected to be approximately $1.38 billion to $1.45 billion, which is an increase of approximately 1% to 6% on a constant currency continuing category basis versus the prior year. Gross margins are expected to be between 48.5% and 50%. SG&A, excluding any restructuring and special charges, is expected to be between $685 million and $700 million. Pro-forma Adjusted EBITDA is expected to be between $70 million and $80 million. This revision of 2015 fiscal year guidance is driven by changes in currency exchange rates since October 2014, as well as additional cost reduction initiatives.

The foregoing outlook updates and supersedes all previous guidance provided by the Company.

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 100 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. The Company’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 the Company’s order book, net revenues, gross margins, SG&A expense, pro-forma adjusted EBITDA and capital expenditures in fiscal year 2015 and the second quarter thereof. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. The Company 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 the Company’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 the Company’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
In thousands, except per share amounts	January 31,
		2015				2014
Revenues, net	$	340,854			$	394,910
Cost of goods sold		171,410				194,270
Gross profit		169,444				200,640
Selling, general and administrative expense		170,504				203,784
Asset impairments		255				883
Operating loss		(1,315	)			(4,027	)
Interest expense		18,402				19,420
Foreign currency loss		657				2,828
Loss before benefit for income taxes		(20,374	)			(26,275	)
Benefit for income taxes		(2,084	)			(4,385	)
Loss from continuing operations		(18,290	)			(21,890	)
Income from discontinued operations, net of tax		6,732				37,617
Net (loss)/income		(11,558	)			15,727
Less: net loss attributable to non-controlling interest		788				464
Net (loss)/income attributable to Quiksilver, Inc.	$	(10,770	)		$	16,191
Loss per share from continuing operations attributable to Quiksilver, Inc.:
Basic	$	(0.11	)		$	(0.13	)
Diluted	$	(0.11	)		$	(0.13	)
Income per share from discontinued operations attributable to Quiksilver, Inc.:
Basic	$	0.04			$	0.22
Diluted	$	0.04			$	0.22
Weighted average common shares outstanding:
Basic		171,039				169,747
Diluted		171,039				169,747
Amounts attributable to Quiksilver, Inc.:
Loss from continuing operations	$	(18,290	)		$	(21,529	)
Income from discontinued operations, net of tax		7,520				37,720
Net (loss)/income	$	(10,770	)		$	16,191

QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
		January 31, 2015				October 31, 2014
In thousands
ASSETS
Current Assets
Cash and cash equivalents		$	60,656			$	46,664
Restricted cash			1,745				4,687
Trade accounts receivable (net of allowance of $54,819 and $63,991, respectively)			258,952				311,014
Other receivables			51,101				40,847
Inventories			306,119				284,517
Deferred income taxes			4,533				4,926
Prepaid expenses and other current assets			31,315				28,080
Current assets held for sale			-				20,265
Total Current Assets			714,421				741,000
Restricted cash			3,918				16,514
Fixed assets, net			194,107				213,768
Intangible assets, net			137,165				135,510
Goodwill			79,805				80,622
Other assets			39,946				47,086
Deferred income taxes - long-term			14,352				16,088
Non-current assets held for sale			-				5,394
TOTAL ASSETS		$	1,183,714			$	1,255,982
LIABILITIES AND EQUITY
Current Liabilities
Lines of credit		$	31,093			$	32,929
Accounts payable			174,090				168,307
Accrued liabilities			101,591				112,701
Current portion of long-term debt			2,261				2,432
Income taxes payable			2,505				1,124
Deferred income taxes			19,490				19,628
Liabilities related to assets held for sale			-				13,266
Total Current Liabilities			331,030				350,387
Long-term debt, net of current portion			770,048				793,229
Other long-term liabilities			34,702				39,342
Deferred income taxes - long-term			21,304				16,790
Total Liabilities			1,157,084				1,199,748
Equity
Common stock			1,743				1,741
Additional paid-in capital			591,173				589,032
Treasury stock			(6,778	)			(6,778	)
Accumulated deficit			(598,177	)			(587,407	)
Accumulated other comprehensive income			38,669				57,288
Total Quiksilver, Inc. Stockholders' Equity			26,630				53,876
Non-controlling interest			-				2,358
Total Equity			26,630				56,234
TOTAL LIABILITIES AND EQUITY		$	1,183,714			$	1,255,982

QUIKSILVER, INC. AND SUBSIDIARIES
ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)
	Three months ended
In thousands	January 31,
		2015				2014
Net loss from continuing operations attributable to Quiksilver, Inc.	$	(18,290	)		$	(21,529	)
Benefit for income taxes		(2,084	)			(4,385	)
Interest expense		18,402				19,420
Depreciation and amortization		10,751				10,545
Non-cash stock-based compensation expense		1,769				5,063
Non-cash asset impairments		255				883
Adjusted EBITDA		10,803				9,997
Restructuring and other special charges		(700	)			6,448
Pro-forma Adjusted EBITDA		10,103				16,445

Definition of Adjusted EBITDA and Pro-forma Adjusted EBITDA:
 
Adjusted EBITDA is defined as net loss from continuing operations 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.

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.

CONSTANT CURRENCY CONTINUING CATEGORY NET REVENUE RECONCILIATION
 
We make reference to net revenues on a "constant currency continuing category" basis in order to provide additional comparable information with regard to changes in net revenues. Constant currency continuing category reporting provides valuable comparisons of net revenues as it adjusts for the effect of changes in foreign currency exchange rates and for the impact on our wholesale channel of transitioning certain product categories to a third-party licensing model. Constant currency is calculated by taking the average foreign currency exchange rate for the current period and applying that same rate to the comparable prior year period. Continuing category impacts are determined by removing the comparable prior period net revenues generated from product categories which are now licensed as well as removing current period licensing net revenues generated from those same licensed product categories.

The following table presents net revenues from continuing operations by segment, brand, channel and product group on both an as reported basis and a comparable constant currency continuing category basis for the first quarters ended January 31, 2015 and 2014 (in thousands):

		Fiscal 2015 Net Revenues As Reported (GAAP)		Less Fiscal 2015 Licensing Revenue from Licensed Product Categories			Fiscal 2015 Comparable Net Revenues (Non-GAAP)			Fiscal 2014 Net Revenues As Reported (GAAP)		Impact of Fiscal 2015 Foreign Exchange Rates on Fiscal 2014 Net Revenues			Less Fiscal 2014 Net Revenues from Licensed Product Categories			Fiscal 2014 Constant Currency Continuing Category Net Revenues (Non-GAAP)			%Δ Fiscal 2015 GAAP Net Revenues vs Fiscal 2014 GAAP Net Revenues			%Δ Fiscal 2015 Non-GAAP Net Revenues vs Fiscal 2014 Non-GAAP Net Revenues
By Region:
Americas		147,767		(477	)		147,290			175,463		(4,036	)		(10,725	)		160,702			-16	%		-8	%
EMEA		125,813		-			125,813			149,397		(20,220	)		(64	)		129,113			-16	%		-3	%
APAC		66,598		-			66,598			69,875		(5,579	)		(65	)		64,231			-5	%		4	%
Corporate		676		-			676			175		(15	)		-			160			286	%		323	%
		340,854		(477	)		340,377			394,910		(29,850	)		(10,853	)		354,207			-14	%		-4	%
By Brand:
Quiksilver		140,796		(70	)		140,726			163,846		(12,820	)		(5,522	)		145,504			-14	%		-3	%
Roxy		100,303		(344	)		99,959			118,026		(8,385	)		(2,779	)		106,862			-15	%		-6	%
DC		89,120		(63	)		89,057			102,989		(7,629	)		(2,553	)		92,807			-13	%		-4	%
Other		10,635		-			10,635			10,049		(1,016	)		-			9,033			6	%		18	%
		340,854		(477	)		340,377			394,910		(29,850	)		(10,853	)		354,207			-14	%		-4	%
By Channel:
Wholesale		192,365		-			192,365			238,696		(16,712	)		(10,853	)		211,131			-19	%		-9	%
Retail		119,124		-			119,124			130,568		(11,916	)		-			118,652			-9	%		0	%
E-commerce		26,661		-			26,661			23,474		(1,222	)		-			22,252			14	%		20	%
Licensing/Royalties		2,704		(477	)		2,227			2,172		-			-			2,172			24	%		3	%
		340,854		(477	)		340,377			394,910		(29,850	)		(10,853	)		354,207			-14	%		-4	%
By Product Group:
Apparel & Accessories		251,456		(477	)		250,979			306,408		(24,447	)		(10,853	)		271,108			-18	%		-7	%
Footwear		89,398		-			89,398			88,502		(5,403	)		-			83,099			1	%		8	%
		340,854		(477	)		340,377			394,910		(29,850	)		(10,853	)		354,207			-14	%		-4	%

Source: Quiksilver, Inc. through BUSINESS WIRE by press release ©



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