Quiksilver, Inc. (ZQK)

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Quiksilver, Inc. (ZQK)

F1Q10 Earnings Call

March 11, 2010 4:30 PM EST

Executives

Bruce Thomas – VP of IR

Bob McKnight – Chairman, President, and CEO

Joe Scirocco – CFO

Steve Tully – President

Analysts

Todd Slater – Lazard Capital

Sean Naughton – Piper Jaffray

David Glick – Buckingham Research Group

Bill Reuter – Bank of America

Grant Jordan – Wells Fargo

Presentation

Operator

Good day, ladies and gentlemen. Thank you for standing by. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions). I would now like to remind everyone that this conference is being recorded.

I would now like to introduce Bruce Thomas, Quiksilver’s Vice President of Investor Relations, who will chair this afternoon’s call.

Bruce Thomas

Thanks operator. Good afternoon everyone and welcome to the Quiksilver first quarter fiscal 2010 earnings conference call. Our speakers’ today are Bob McKnight, our Chairman, President and Chief Executive Officer; and Joe Scirocco, our Chief Financial Officer.

Before we begin, I would like to briefly review the company’s Safe Harbor language. 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 section titled Risk Factors in our most recent Annual Report on Form 10-K.

All forward-looking statements made on this call speak only as of today’s date 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 would like to turn the call over to Bob McKnight.

Bob McKnight

Thanks Bruce. Good afternoon, everyone, and thanks for joining us for our first quarter conference call. After two years of hard work, making difficult decisions, forging ahead with the sale of Rossignol and the related changes in senior management, making deep cost cuts, and after globally restructuring our business and our balance sheet, I am proud to say that our efforts are now materially contributing to improved financial results.

Although consumer spending remains at lower levels on a global basis, our business is operating with substantial traction on many fronts and we are delighted that the changes we have made in the past two years are beginning to pay off.

Within our organizational restructuring, we continued to align key people with our most important initiatives. And only some of our progress is reflected in the results we reported today and then our outlook for the remainder of the year. Our team has done a great job of responding to the challenge of developing great products and then reaching out to our customers in new and innovative ways.

As a result of our many changes coupled with our ongoing understanding of and loyalty to the markets we serve and develop, we are in a prime position to benefit from future improvements in the world’s economies and in particular in consumer spending. We are determined and excited yet not overconfident. We still have much to accomplish as we constantly evaluate ways to further improve our operations and respond to changing market conditions.

Let’s now turn to the high level of financial highlights from the first quarter in which we exceeded expectations in nearly every measurable way. We have taken bold steps over the past several quarters to improve our operations and these results demonstrate solid material progress.

Consolidated net revenues declined 2% to $433 million which was roughly $20 million higher than we anticipated a quarter ago. We are quite pleased to report that inventories are in very good shape and the amount of clearance activity has been greatly reduced. Consequently, our consolidated gross profit in the quarter expanded by 460 basis points to 51.3% of sales, which exceeded the high end of all of our estimates.

Recurring expenses during the quarter remained well controlled. Excluding a $3 million charge for severance pay, we incurred a loss from continuing operations of $3 million or $0.02 per share compared to a loss of $9 million or $0.07 per share in the first quarter a year ago. This result was substantially better than we anticipated when the quarter began. These better than expected results won’t be positive unless -- I am sorry, wouldn’t be positive unless we had iconic brands and interesting, innovative products.

Let me take a moment to focus on our brands. I will start with Quiksilver which as you know is by far and away the biggest and most respected action sports lifestyle brand in the world. Within the male side of the action sports apparel market, the highest visibility opportunity at this time is in performance board shorts. This quarter we rolled out our new ad and store window campaigns for our Cypher series board shorts in order to set the table for the upcoming spring break season in the US.

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