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Quiksilver Reports Fiscal 2013 Second Quarter Financial Results

Company Provides Updated Guidance for Fiscal 2013

HUNTINGTON BEACH, Calif.--(BUSINESS WIRE)--Jun. 6, 2013-- Quiksilver, Inc. (NYSE:ZQK) today announced operating results for the fiscal 2013 second quarter ended April 30, 2013.

“We recently announced a multi-year profit improvement plan designed to enhance the performance of our three flagship brands, Quiksilver, Roxy and DC, and accelerate our path to sustained profitable growth,” said Andy Mooney, President and Chief Executive Officer of Quiksilver, Inc. “With a reorganized management structure and our new leadership team largely in place, we have begun working toward globalizing key functions and gaining efficiencies to reap the benefits of our size and scale. We believe that, over time, our new focus and structure will allow us to significantly improve profitability, working capital efficiency and competitive positioning.

“Our second quarter performance reflects net revenue declines primarily within our EMEA wholesale channel, along with lower gross margins across all three flagship brands, particularly within DC,” continued Mooney. “We continued to liquidate prior seasons’ inventory and meaningfully lowered operating expenses.”

Please refer to the accompanying tables for a reconciliation of GAAP results to certain non-GAAP results for the second quarter and first half ended April 30, 2013 and 2012, net revenues in historical and constant currency, and a definition of our emerging markets.

Fiscal 2013 Second Quarter Review:
The following comparisons refer to the second quarter of fiscal 2013 versus the second quarter of fiscal 2012.

Net revenues were $459 million compared with $492 million, and were down 5%, or $25 million, in constant currency.

  • Americas net revenues increased 3% to $229 million from $221 million, and were up 4% in constant currency.
  • EMEA net revenues decreased 16% to $165 million from $196 million, and were down 14% in constant currency.
  • APAC net revenues decreased 14% to $64 million from $74 million, and were down 9% in constant currency.

Gross margin decreased to 46.0% of net revenues compared with 49.2%, primarily driven by increased discounting and clearance of DC product, increased discounting in Europe across the company’s three flagship brands, and inventory write downs related to certain brands and product categories which were discontinued in the second quarter.

SG&A decreased to $218 million compared with $224 million, primarily due to the company’s ongoing expense reduction efforts which resulted in savings across several expense categories.

Non-cash asset impairments were $5.3 million compared with $0.4 million.

Foreign currency gain was $2.6 million compared with $0.6 million.

Net loss attributable to Quiksilver, Inc. was $32 million, or $0.19 per share, compared with $5 million, or $0.03 per share.

Pro-forma loss, which excludes the after-tax impact of restructuring and other special charges and non-cash asset impairments from net loss attributable to Quiksilver, Inc., was $20 million and $2 million, or $0.12 per share and $0.01 per share, respectively.

Pro-forma Adjusted EBITDA was $19 million compared with $41 million, with the decline largely driven by gross margin and net revenue declines.

Fiscal 2013 Q2 Net Revenue Highlights:
Net revenues (in constant currency) by brand and channel for the second quarter of fiscal 2013 compared with the second quarter of fiscal 2012 were as follows.

Brands (constant currency):

  • Quiksilver decreased 10% to $182 million;
  • Roxy decreased 4% to $129 million; and,
  • DC increased 1% to $129 million.

Distribution channels (constant currency):

  • Wholesale decreased 7% to $344 million;
  • Retail decreased 5% to $91 million. Second quarter same store sales in company-owned retail stores decreased 4% on a global basis. Company-owned retail stores totaled 564 compared with 549 at the end of fiscal 2012 second quarter; and,
  • E-commerce was up 31% to $23 million.

Emerging markets generated net revenue growth of 13% in constant currency.

Guidance for Fiscal 2013:
Based on its current outlook, the company revised its fiscal 2013 financial guidance as follows:

  • Pro-forma adjusted EBITDA for the second half of fiscal 2013 is expected to be greater than the $91 million achieved during the second half of fiscal 2012;
  • Capital expenditures for fiscal 2013 are expected to decrease by at least 10% from the $66 million recorded in fiscal 2012.

The foregoing guidance updates and supersedes the company’s prior guidance for fiscal 2013.

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 profitability, working capital efficiency, and competitive positioning as well as management’s current expectations regarding pro-forma adjusted EBITDA and capital expenditures for the second half of fiscal 2013, and other future activities. 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, www.dcshoes.com and www.moskova.com.

FINANCIAL TABLES FOLLOW

QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
     
 
Second quarter ended First half ended
April 30, April 30,

2013

2012

2013

2012

In thousands, except per share amounts
Revenues, net $ 458,748 $ 492,213 $ 889,766 $ 941,834
Cost of goods sold   247,612     250,064     458,923     471,735  
 
Gross profit 211,136 242,149 430,843 470,099
 
Selling, general and administrative expense 218,204 224,010 443,463 454,425
Asset impairments   5,332     415     8,500     415  
 
Operating (loss) income (12,400 ) 17,724 (21,120 ) 15,259
 
Interest expense 15,289 15,585 30,796 30,630
Foreign currency (gain) loss   (2,618 )   (609 )   555     (2,459 )
 
(Loss) income before provision for income taxes (25,071 ) 2,748 (52,471 ) (12,912 )
 
Provision for income taxes   7,147     7,155     10,371     12,405  
 
Net loss (32,218 ) (4,407 ) (62,842 ) (25,317 )
Less: net income attributable to non-controlling interest   (177 )   (713 )   (682 )   (2,408 )
 
Net loss attributable to Quiksilver, Inc. $ (32,395 ) $ (5,120 ) $ (63,524 ) $ (27,725 )
 
Net loss per share attributable to Quiksilver, Inc. (basic and diluted): $ (0.19 ) $ (0.03 ) $ (0.38 ) $ (0.17 )
 
Weighted average common shares outstanding (basic and diluted): 166,815 163,953 166,282 163,655
 
QUIKSILVER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
     

April 30, 2013

April 30, 2012

In thousands

ASSETS

Current Assets
Cash and cash equivalents $ 47,893 $ 79,177
Trade accounts receivable (net of allowance of $57,134 and $53,593, respectively) 375,336 370,974
Other receivables 31,933 26,250
Inventories 366,304 358,915
Deferred income taxes - short-term 25,696 17,752
Prepaid expenses and other current assets   33,457     31,697  
Total Current Assets 880,619 884,765
 
Fixed assets, net 232,955 240,424
Intangible assets, net 138,749 137,212
Goodwill 272,764 268,340
Other assets 43,759 54,948
Deferred income taxes - long-term   114,391     110,752  
Total Assets $ 1,683,237   $ 1,696,441  
 

LIABILITIES AND EQUITY

Current Liabilities
Lines of credit $ - $ 13,517
Accounts payable 185,570 190,647
Accrued liabilities 102,480 108,770
Current portion of long-term debt 44,834 22,840

Income taxes payable

  451     3,068  
Total Current Liabilities 333,335 338,842
 
Long-term debt, net of current portion 769,108 732,916
Other long-term liabilities   34,958     33,790  
Total Liabilities 1,137,401 1,105,548
 
Equity
Common stock 1,705 1,684
Additional paid-in capital 560,303 544,809
Treasury stock (6,778 ) (6,778 )
Accumulated deficit (106,845 ) (60,290 )
Accumulated other comprehensive income   77,799     95,096  
Total Quiksilver, Inc. Stockholders' Equity 526,184 574,521
Non-controlling interest   19,652     16,372  
Total Equity   545,836     590,893  
 
Total Liabilities and Equity $ 1,683,237   $ 1,696,441  
 
QUIKSILVER, INC. AND SUBSIDIARIES
INFORMATION RELATED TO OPERATING SEGMENTS (UNAUDITED)
       
 
Second quarter ended First half ended
In thousands April 30, April 30,

2013

2012

2013

2012

Revenues, net:
Americas $ 228,703 $ 220,975 $ 414,987 $ 426,383
EMEA 165,189 195,554 336,364 364,428
APAC 63,900 74,026 136,776 148,619
Corporate operations   956     1,658     1,639     2,404  
458,748 492,213 889,766 941,834
 
Gross Profit:
Americas $ 92,696 $ 97,709 $ 173,555 $ 185,637
EMEA 87,961 108,997 186,850 210,769
APAC 31,634 35,963 70,911 74,103
Corporate operations   (1,155 )   (520 )   (473 )   (410 )
211,136 242,149 430,843 470,099
 
SG&A Expense:
Americas $ 84,999 $ 88,407 $ 173,073 $ 177,888
EMEA 80,976 83,202 164,210 169,298
APAC 37,756 40,002 74,962 77,241
Corporate operations   14,473     12,399     31,218     29,998  
218,204 224,010 443,463 454,425
 
Asset Impairments:
Americas $ 5,322 $ 415 $ 6,943 $ 415
EMEA 10 - 1,557 -
APAC - - - -
Corporate operations   -     -     -     -  
5,332 415 8,500 415
 
Operating Income (Loss):
Americas $ 2,375 $ 8,887 $ (6,461 ) $ 7,334
EMEA 6,975 25,795 21,083 41,471
APAC (6,122 ) (4,039 ) (4,051 ) (3,138 )
Corporate operations   (15,628 )   (12,919 )   (31,691 )   (30,408 )
(12,400 ) 17,724 (21,120 ) 15,259
 

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 NET LOSS RECONCILIATION (UNAUDITED)
       
 
Second quarter ended First half ended
April 30, April 30,

2013

2012

2013

2012

In thousands, except per share amounts
Net loss attributable to Quiksilver, Inc. $ (32,395 ) $ (5,120 ) $ (63,524 ) $ (27,725 )
Restructuring charges, net of tax of $221, $600, $625 and $800, respectively 7,049 2,966 9,650 5,242
Non-cash asset impairments, net of tax of $136, $32, $692 and $32, respectively   5,196     383     7,808     383  
 
Pro-forma net loss (20,150 ) (1,771 ) (46,066 ) (22,100 )
 
Pro-forma loss per share attributable to Quiksilver, Inc. (basic and diluted): $ (0.12 ) $ (0.01 ) $ (0.28 ) $ (0.14 )
 
Weighted average common shares outstanding (basic and diluted): 166,815 163,953 166,282 163,655
 
QUIKSILVER, INC. AND SUBSIDIARIES
ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)
       
 
Second quarter ended First half ended
April 30, April 30,

2013

2012

2013

2012

In thousands
Net loss attributable to Quiksilver, Inc. $ (32,395 ) $ (5,120 ) $ (63,524 ) $ (27,725 )
Provision for income taxes 7,147 7,155 10,371 12,405
Interest expense 15,289 15,585 30,796 30,630
Depreciation and amortization 12,808 14,163 25,027 27,125
Non-cash stock-based compensation expense 3,887 5,423 11,223 12,400
Non-cash asset impairments   5,332     415     8,500     415  
 
Adjusted EBITDA 12,068 37,621 22,393 55,250
 
Restructuring and other special charges   6,833     3,566     9,838     6,042  
 
Pro-forma Adjusted EBITDA 18,901 41,187 32,231 61,292
 

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.

QUIKSILVER, INC. AND SUBSIDIARIES
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 second quarter ended April 30, 2013 and 2012 (in thousands):
 
 

Americas

EMEA

APAC

Corporate

Total

Historical currency (as reported):
April 30, 2013 $ 228,703 $ 165,189 $ 63,900 $ 956 $ 458,748
April 30, 2012 220,975 195,554 74,026 1,658 492,213
Percentage increase (decrease) 3 % -16 % -14 % -7 %
 
Constant currency (current year exchange rates):
April 30, 2013 228,703 165,189 63,900 956 458,748
April 30, 2012 219,240 192,532 69,870 1,654 483,296
Percentage increase (decrease) 4 % -14 % -9 % -5 %

Source: Quiksilver, Inc.

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


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