Quiksilver, Inc. (ZQK)

ZQK 
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Industry: Consumer Non-Durables
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Quiksilver (ZQK)

Q2 2011 Earnings Call

June 02, 2011 4:30 pm ET

Executives

Craig Stevenson - President of Quiksilver South Pacific and President of Quiksilver Americas

Joseph Scirocco - Chief Operating Officer, Chief Financial Officer and Executive Vice President

Bruce Thomas - Vice President of Investor Relations

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

Analysts

Spenser Samms - BofA Merrill Lynch

Eric Tracy - FBR Capital Markets & Co.

Mitchel Kummetz - Robert W. Baird & Co. Incorporated

Andrew Burns - D.A. Davidson & Co.

Jeffrey Klinefelter - Piper Jaffray Companies

Jim Duffy - Stifel, Nicolaus & Co., Inc.

Jeffrey Van Sinderen - B. Riley & Co., LLC

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. [Operator Instructions] I would like to remind everyone that this conference is being recorded. And now, I'd like to introduce Bruce Thomas, Quiksilver's Vice President of Investor Relations, who will chair this afternoon's conference.

Bruce Thomas

Thanks, operator. Good afternoon, everyone, and welcome to the Quiksilver's Second Quarter Fiscal 2011 Earnings Conference Call.

Our speakers today are Bob McKnight, our Chairman, President and Chief Executive Officer; and Joe Scirocco, our Chief Financial and Operating Officer.

Before we begin, I'd 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'd like to turn the call over to Bob McKnight.

Robert McKnight

Thanks, Bruce. Good afternoon, everyone, and thanks for joining us for our second quarter conference call. I want to start by saying that we're very pleased to have exceeded expectations for the second quarter despite several natural disasters that have unfortunately, impacted the Asia Pacific region over the past few months. Our Americas and European businesses delivered very solid performance coming at ahead of plan and offsetting the near-term impact of these natural disasters.

As such, I am pleased to report solid second quarter results that were better than we expected when the quarter began. Revenues of $478 million in the second quarter exceeded our plan, and were up when compared to the second quarter of 2010. Gross profit of $262 million was up 5% this quarter compared to a year ago, demonstrating that our business is performing considerably better. Gross margins expanded 160 basis points to a Q2 record, 54.8% of revenues as we benefited from continued improvements in our U.S. retail stores and less discounting in the wholesale channel. Pro forma adjusted EBITDA was $62 million in the second quarter, in line with last year, as gross profit gains were offset by increased spend ahead of revenue generation. And finally, our net debt at April 30 was $594 million, representing 2.9x pro forma adjusted EBITDA, that's down 19% over the last 12 months, reflecting the enormous progress we've made in improving our balance sheet.

Taken together, the solid second quarter performance resulted from us continuing to do what we do best: Developing and delivering exciting, innovative, authentic, quality products and connecting with our consumer base with creative and impactful marketing campaigns. Signs of improvement are evident in many areas of our business and we believe we are well positioned to capitalize on growth opportunities within our 3 strong global action sports brands and our many markets around the world.

Our European business performed better than expected in Q2, despite weaker sales in markets such as the U.K. and Spain. Our business is much better now in France and sales were strong in our emerging European markets where investments made to further develop our business are driving profitable growth in all 3 brands, Quiksilver, Roxy and DC, are doing well.

On the European retail front, we're delighted with our new concept stores. We've had great reaction and strong performance from the new store formats in the core markets of Capbreton and Hossegor in Southwest France, as well as the incredible Bercy Village store in Paris. These stores feature broad offerings from each of our brands, together with a deep stock of surfboards, wetsuits, skateboards and other products that reinforce our heritage and authenticity to the consumer in a way that other brands simply cannot.

The Capbreton store features an athlete training center, and like the Bercy Village store in Paris, is used for many of our events and promotions. Events at our Capbreton store include a summer concert series, as well known French artists and frequent guests include many of our team riders, their peers, as well as many well-known sports stars and personalities. In the same spirit and direction, we have retrofitted several other the key stores and the plans to refit or, at least, update the feel of many more of our European stores before the end of the year. And we plan to further own the Atlantic coast and the French Alps, as we take the same store concept to other key European surf and snow destinations that include Ericeira in Portugal, Distro Beach[ph] in the U.K. and the heart of the Alps in Chamonix. These stores will reinforce our marketing -- our market-leading position on the continent.

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