News Column

Quiksilver Reports Third Quarter Financial Results

September 4, 2014

--Company Advances Profit Improvement Plan Initiatives, Records Non-cash Charge of $182 Million for Goodwill Impairment--

HUNTINGTON BEACH, Calif.--(BUSINESS WIRE)-- Quiksilver, Inc. (NYSE:ZQK) today announced financial results for the fiscal 2014 third quarter ended July 31, 2014.

“We continued to execute against the key initiatives laid out in our profit improvement plan and to drive growth in our direct to consumer channels and emerging markets,” said Andy Mooney, President and Chief Executive Officer of Quiksilver, Inc. “As we expected, revenues for the third quarter declined in our wholesale channels in North America and Europe. In addition, late product deliveries, largely the result of our transition to global demand planning, negatively impacted our sales performance and gross margin.

“We are resolving the product delivery issues and already see improved fulfillment in the Holiday season. We continued to right-size staffing, redeployed our marketing to invest more in media and point of sale, improved the quality of distribution in North America and completed a number of licensing transactions for peripheral product categories. We are encouraged by the positive feedback we have received on our Spring 2015 product lines, both for apparel and footwear.”

All of the results presented below represent the Company’s continuing operations.

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 loss from continuing operations, pro-forma loss from continuing operations per share, adjusted EBITDA and pro-forma adjusted EBITDA, for all periods presented, net revenues in historical and constant currency, and a definition of the Company’s emerging markets.

Third Quarter Review:

The following comparisons refer to results of continuing operations for the third quarter of fiscal 2014 versus the third quarter of fiscal 2013.

Net revenues were $396 million compared with $488 million, and were down 19%, or $96 million, in constant currency.

  • Americas net revenues decreased 27% to $191 million from $261 million, and were down 26% in constant currency.
  • EMEA net revenues decreased 13% to $143 million from $164 million, and were down 16% in constant currency.
  • APAC net revenues decreased 2% to $62 million from $63 million, but were up 1% in constant currency.

    Gross margin decreased to 47.8% from 49.1%. The 130 basis point decline in gross margin reflects increased discounting in the wholesale channels of certain regions, partially offset by sales growth in our higher-margin direct to consumer channels.

    SG&A expense decreased $2 million to $213 million from $215 million. The decrease was driven by reduced employee compensation expenses as a result of lower severance costs.

    Asset impairments totaled $183 million compared with $2 million, reflecting a non-cash charge of $182 million in the third quarter of fiscal 2014 to write-off the carrying value of goodwill attributable to the Company’s EMEA reporting segment.

    Pro-forma Adjusted EBITDA decreased to zero from $53 million.

    Net loss from continuing operations attributable to Quiksilver, Inc. was $220 million, or $1.29 per share, versus income from continuing operations of $0.2 million, or $0.00 per diluted share.

    Pro-forma loss from continuing operations attributable to Quiksilver, Inc., which excludes the after-tax impact of restructuring and other special charges, non-cash asset impairments and non-cash interest charges, was $35 million, or $0.20 per share, versus pro-forma income from continuing operations of $13 million, or $0.07 per diluted share.

    Q3 Net Revenue Highlights:

    Net revenues from continuing operations by brand and channel for the third quarter of fiscal 2014 compared with the third quarter of fiscal 2013 were as follows.

    Brands (constant currency):

  • Quiksilver decreased $30 million, or 17%, to $143 million.
  • Roxy decreased $12 million, or 9%, to $119 million.
  • DC decreased $57 million, or 34%, to $109 million.

    Distribution channels (constant currency):

  • Wholesale revenues decreased 30% to $235 million.
  • Retail revenues increased 1% to $123 million. Same-store sales in company-owned retail stores improved 1%. Company-owned retail stores totaled 658 at the end of the fiscal 2014 third quarter compared with 632 at the end of the fiscal 2013 third quarter.
  • E-commerce revenues grew 10% to $35 million.

    Emerging markets generated net revenue growth of 10% 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 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 Profit Improvement Plan and Spring 2015 product lines. 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.

    FINANCIAL TABLES FOLLOW

     
    QUIKSILVER, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
           
     
    Third QuarterNine Months
    July 31,July 31,
      2014     2013     2014     2013  
    In thousands, except per share amounts
    Revenues, net$395,655$488,325$1,215,038$1,368,929
    Cost of goods sold   206,719     248,479     619,122     703,818  
     
    Gross profit188,936239,846595,916665,111
     
    Selling, general and administrative expense 212,674 214,722 638,140 653,668
    Asset impairments   182,564     2,152     203,408     10,652  
     
    Operating (loss)/income(206,302)22,972(245,632)791
     
    Interest expense 18,772 20,223 57,467 51,073
    Foreign currency (gain)/loss   (2,294 )   4,046     1,459     4,436  
     
    Loss before (benefit)/provision for income taxes(222,780)(1,297)(304,558)(54,718)
     
    (Benefit)/provision for income taxes   (636 )   (1,232 )   (6,139 )   8,773  
     
    Loss from continuing operations(222,144)(65)(298,419)(63,491)
    (Loss)/income from discontinued operations, net of tax   (34 )   1,889     30,366     2,473  
     
    Net (loss)/income(222,178)1,824(268,053)(61,018)
    Less: net loss/(income) attributable to non-controlling interest   2,093     247     10,294     (435 )
     
    Net (loss)/income attributable to Quiksilver, Inc.$(220,085)$2,071   $(257,759)$(61,453)
     
    (Loss)/income per share from continuing operations attributable to Quiksilver, Inc.:
    Basic$(1.29)$0.00$(1.69)$(0.38)
    Diluted$(1.29)$0.00$(1.69)$(0.38)
     
    (Loss)/income per share from discontinued operations attributable to Quiksilver, Inc.:
    Basic$(0.00)$0.01$0.18$0.01
    Diluted$(0.00)$0.01$0.18$0.01
     
    Weighted average common shares outstanding:
    Basic170,794167,624170,337166,735
    Diluted170,794190,568170,337166,735
     
    Amounts attributable to Quiksilver, Inc.:
    (Loss)/income from continuing operations$(220,051)$182$(288,125)$(63,926)
    (Loss)/income from discontinued operations, net of tax   (34)   1,889     30,366     2,473  
    Net (loss)/income$(220,085)$2,071   $(257,759)$(61,453)
     
     
    QUIKSILVER, INC. AND SUBSIDIARIES
    CONSOLIDATED BALANCE SHEETS (UNAUDITED)
             
    July 31, 2014July 31, 2013
    In thousands

    ASSETS

    Current Assets
    Cash and cash equivalents (includes restricted cash of $23,897 and $409,167, respectively) $ 107,858 $ 471,550
    Trade accounts receivable (net of allowance of $63,251 and $58,734, respectively) 318,296 410,978
    Other receivables 27,313 23,057
    Income taxes receivable 1,535 2,779
    Inventories 346,072 385,394
    Deferred income taxes - short-term 9,778 28,086
    Prepaid expenses and other current assets 30,362 35,029
    Current assets held for sale   -     23,692  
    Total Current Assets841,2141,380,565
     
    Fixed assets, net 219,361 227,356
    Intangible assets, net 135,627 137,464
    Goodwill 80,845 272,417
    Other assets 48,759 54,469
    Deferred income taxes - long-term - 118,603
    Non-current assets held for sale   -     1,653  
    Total Assets$1,325,806   $2,192,527  
     

    LIABILITIES AND EQUITY

    Current Liabilities
    Accounts payable $ 198,878 $ 237,463
    Accrued liabilities 114,906 105,185
    Current portion of long-term debt 28,406 43,153
    Debt to be redeemed - 409,167
    Liabilities related to assets held for sale   -     2,664  
    Total Current Liabilities342,190797,632
     
    Long-term debt, net of current portion 812,343 807,094
    Other long-term liabilities 33,122 34,800
    Deferred income taxes - long-term 24,004 -
    Non-current liabilities related to assets held for sale   -     176  
    Total Liabilities1,211,6591,639,702
     
    Equity
    Common stock 1,740 1,712
    Additional paid-in capital 587,506 567,601
    Treasury stock (6,778 ) (6,778 )
    Accumulated deficit (533,645 ) (104,774 )
    Accumulated other comprehensive income   63,369     75,659  
    Total Quiksilver, Inc. Stockholders' Equity112,192533,420
    Non-controlling interest   1,955     19,405  
    Total Equity   114,147     552,825  
     
    Total Liabilities and Equity$1,325,806   $2,192,527  
     
     
    QUIKSILVER, INC. AND SUBSIDIARIES
    GAAP TO PRO-FORMA (LOSS)/INCOME FROM CONTINUING OPERATIONS RECONCILIATION (UNAUDITED)
           
     
    Third quarter endedNine months ended
    July 31,July 31,
      2014     2013   2014     2013  
    In thousands, except per share amounts
    Net (loss)/income from continuing operations attributable to Quiksilver, Inc.$(220,051)$182$(288,125)$(63,926)

    Restructuring and other special charges, net of tax of $82, $2,406, $1,125 and $3,031, respectively

    5,055 10,767 18,812 20,417
    Non-cash asset impairments, net of tax of $103, $49, $159 and $741, respectively 180,430 2,103 193,759 9,911
    Non-cash interest charges, net of tax of $0 for all periods   -     3,179   -     3,179  
     

    Pro-forma (loss)/income from continuing operations attributable to Quiksilver, Inc.

    (34,566)13,052(75,554)(30,419)
     

    Pro-forma (loss)/income per share from continuing operations attributable to Quiksilver, Inc.:

    Basic$(0.20)$0.08$(0.44)$(0.18)
    Diluted$(0.20)$0.07$(0.44)$(0.18)
     
    Weighted average common shares outstanding:
    Basic170,794167,624170,337166,735
    Diluted170,794190,568170,337166,735
     
     
    QUIKSILVER, INC. AND SUBSIDIARIES
    ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)
           
     
    Third quarter endedNine months ended
    July 31,July 31,
      2014     2013     2014     2013  
    In thousands
    (Loss)/income from continuing operations

    attributable to Quiksilver, Inc.

    $(220,051)$182$(288,125)$(63,926)
    (Benefit)/provision for income taxes (636 ) (1,232 ) (6,139 ) 8,773
    Interest expense 18,772 20,223 57,467 51,073
    Depreciation and amortization 15,555 12,921 41,169 37,806
    Non-cash stock-based compensation expense 4,222 4,972 15,810 16,195
    Non-cash asset impairments, net   180,533     2,152     193,918     10,652  
     
    Adjusted EBITDA(1,605)39,21814,10060,573
     
    Restructuring and other special charges   1,621     13,293     14,451     23,131  
     
    Pro-forma Adjusted EBITDA1652,51128,55183,704
     


    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, net of non-controlling interest. Pro-forma Adjusted EBITDA is defined as Adjusted EBITDA excluding restructuring and other special charges. Such charges include, but are not limited to, a) gains and losses on early lease terminations; severance and other termination costs for employees or independent agents; contractual or other termination costs paid to sever business relationships with sponsored athletes, vendors, customers, and other business partners; write-offs of inventory and other assets devalued as a direct result of restructuring activities; and other expenses associated with planning and implementing profit improvement plan activities; and b) other significant, non-recurring and unusual items. 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, the impact of implementing restructuring activities, and other significant, non-recurring and unusual items. 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 restructuring and other special charges, as these items 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 third quarter ended July 31, 2014 and 2013 (in thousands):
     
    AmericasEMEAAPACCorporateTotal
     
    Historical currency (as reported):
    July 31, 2014 $ 191,357 $ 142,553 $ 61,658 $ 87 $ 395,655
    July 31, 2013 261,191 163,750 62,769 615 488,325
    Percentage decrease -27 % -13 % -2 % -19 %
     
    Constant currency (current year exchange rates):
    July 31, 2014 191,357 142,553 61,658 87 395,655
    July 31, 2013 259,308 170,447 60,916 626 491,297
    Percentage (decrease)/increase -26 % -16 % 1 % -19 %
     
     

    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.

    Robert Jaffe

    Investor Relations

    424-288-4098

    zqk@quiksilver.com


    Source: Quiksilver, Inc.


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