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Quiksilver reports first quarter net revenues down 4%

 

 

Industry Updates

Americas net revenues down 8% while EMEA dips 3%

Surfersvillage Global Surf News, 17 March, 2015 - Huntington Beach - Quiksilver, Inc. 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.”

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.

Regions
 
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.

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