Quiksilver, Inc. (ZQK)

ZQK 
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Industry: Consumer Non-Durables
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Quiksilver (ZQK)

Q4 2012 Earnings Call

December 13, 2012 4:30 pm ET

Executives

Robert Jaffe

Robert B. McKnight - Co-Founder, Executive Chairman, Chief Executive Officer and President

Richard J. Shields - Chief Financial Officer and Principal Accounting Officer

Robert Owen Colby - President of Americas Region

Craig Stevenson - Chief Operating Officer and Global Brand President

Analysts

Taposh Bari - Goldman Sachs Group Inc., Research Division

Maria C. Vizuete - Piper Jaffray Companies, Research Division

Jeffrey Wallin Van Sinderen - B. Riley & Co., LLC, Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Mitchel J. Kummetz - Robert W. Baird & Co. Incorporated, Research Division

Christian Buss - Crédit Suisse AG, Research Division

Eric A. Alexander - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Quiksilver Fiscal 2012 Fourth Quarter Financial Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded. I'd now like to introduce Robert Jaffe, Investor Relations for Quiksilver, who will host this afternoon's call. Please go ahead, sir.

Robert Jaffe

Thank you, operator. Good afternoon, everyone, and welcome to the Quiksilver Fiscal 2012 Fourth Quarter and Full Year Earnings Conference Call. Our speakers today are Bob McKnight, our Chairman, President and Chief Executive Officer; and Richard Shields, our Chief Financial Officer. Also joining us are Craig Stevenson, our Global Brand President and the Chief Operating Officer of Quiksilver, Inc.; and Rob Colby, our Americas Region President.

Before we begin, I'd like to briefly review the company's Safe Harbor statement. Throughout our call today, items may be discussed that are not based on historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding Quiksilver's business outlook and future performance constitute forward-looking statements, and results could differ materially from those stated or implied by these forward-looking statements as a result of risks, uncertainties and other factors, including those identified in our filings with the Securities and Exchange Commission, specifically under the sections titled Risk Factors and Forward-Looking Statements in our most recent annual report on Form 10-K and on our quarterly reports on Form 10-Q.

All forward-looking statements made on this call speak only as of today's date, December 13, 2012, and the company undertakes no duty to update any forward-looking statements.

In addition, this presentation may contain references to non-GAAP financial information. A reconciliation of non-GAAP financial information to the most directly comparable GAAP financial information is included in our press release, which can be found in electronic form on our website at www.quiksilverinc.com.

With that out of the way, I'd like to turn the call over to Bob McKnight.

Robert B. McKnight

Thanks, Robert. Good afternoon, everyone, and thanks for joining us today for our fourth quarter and year-end conference call.

I'm happy to report that we generated solid top line improvement for both the full year and fourth quarter of fiscal 2012. In fact, revenues for the year, in constant currency, grew 7%, increasing across all 3 brands, all 3 regions and all 3 distribution channels of wholesale, retail and e-commerce. We consider achieving sales growth in the current economic environment a major success, especially given the challenges in certain markets, particularly Europe and Australia.

In the Americas and Asia Pacific regions, markets where conditions are more favorable than Europe, our brands are growing well. In the Americas, growth of net revenues in constant currency for the year was 11% for Quiksilver, 12% for Roxy and 11% for DC. And in Asia Pacific, growth of net revenues in constant currency for the year was 13% for Quiksilver, 7% for Roxy and 24% for DC.

We're especially pleased with the sales growth at Roxy, which had a bounce-back year in fiscal 2012. Importantly, the sales growth was driven by the strength of Roxy's product offering, which allowed us to capture market share in our core channels.

A portion of our net revenues included increased clearance sales within our wholesale channel and discounting within our retail channel. These products carry lower margins, which led to a decrease in our gross margin to 46% in the fourth quarter from 52% in the fourth quarter of last year. For the year, gross margin was 49% compared with 52% for the prior year.

We made progress in lowering SG&A expense throughout the year, which decreased 5% to $236 million in the fourth quarter. We are also pleased with the excellent progress we've made on executing our 3 long-term initiatives, which include strengthening our brands, expanding our business and driving operational efficiencies. It is these core initiatives I'd like to expand on further.

Our brands are the heart and soul of our business, and ensuring that Quiksilver, Roxy and DC resonate deeply with our customers is our continuing mission. With all of our brands, products come first. Highly functional and innovative products are crucial to our brands. And in the fourth quarter, we shipped exciting, new, cold weather Quiksilver and Roxy products to new distribution in the non-coastal areas of the United States and Canada. And we continue to see a huge opportunity in this new market.

In the fourth quarter, the DC product line, which continues to grow in popularity throughout our 3 regions, had great success with a new collection designed by Rob Dyrdek, one of the most innovative minds in action sports footwear and apparel. The Holiday 2012 Dyrdek Collection, designed exclusively by Dyrdek, is inspired and driven by the DC legacy of classic athletic skate heritage.

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