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Quiksilver (ZQK)

Q1 2014 Earnings Call

March 06, 2014 4:30 pm ET


Robert Jaffe

Andrew P. Mooney - Chief Executive Officer, President and Director

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


Taposh Bari - Goldman Sachs Group Inc., Research Division

Erinn E. Murphy - Piper Jaffray Companies, Research Division

Karru Martinson - Deutsche Bank AG, Research Division

Kelly L. Halsor - BB&T Capital Markets, Research Division

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

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Jim Duffy - Stifel, Nicolaus & Company, Incorporated, Research Division

Christian Buss - Crédit Suisse AG, Research Division

James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division

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



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Quiksilver Inc. Fiscal 2014 First Quarter Financial Results Conference Call. [Operator Instructions] I'd like to remind everyone that this conference is being recorded.

And 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 2014 first quarter earnings conference call. Our speakers today are Andy Mooney, President and Chief Executive Officer; and Richard Shields, Chief Financial Officer.

Before we begin, I'd like to make -- 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. Actual 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 and in our quarterly reports on Form 10-Q. All forward-looking statements made on this call speak only as of today's date, March 6, 2014, 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 on our website at

With that, I'd like to turn the call over to Andy Mooney.

Andrew P. Mooney

Thank you, Robert. Good afternoon, everyone, and thank you for joining our call today. I'll begin with some comments on our first quarter financial performance and share insights and elements of the Profit Improvement Plan. Rich will follow with details on the Q1 financial results.

The first quarter pro forma adjusted EBITDA increased by $3 million over the prior year first quarter. The increase was driven by our cost reduction initiatives. Q1 was the third consecutive quarter of pro forma adjusted EBITDA growth. Similar to results in the second half of last year, we were able to generate increased pro forma adjusted EBITDA in Q1 despite decreased net revenues.

First quarter net revenues were down 2% in constant currency driven by reduced wholesale channel sales, most notably in the developed markets of North America and Europe, our smaller wholesale accounts in North America and Europe faced and we expect will continue to face competitive challenges from larger traditional competitors as well as online competitors.

We expect to see some continued fallout in these smaller wholesale accounts. However, we also believe that we have opportunities to increase sales to the larger wholesale accounts in these markets by focusing on appropriately segmented product collections.

In contrast to the decline in wholesale sales, our emerging markets and direct-to-consumer channels offshore continued strength. In constant currency, revenues from our retail stores and e-commerce channels were up 4% and 16%, respectively, and revenues from our emerging markets increased 32%.

Coming to our Profit Improvement Plan. During the quarter we continued to reduce costs and make progress in optimizing supply chain and laying the foundation for stabilizing and growing revenues.

From cost reductions and rightsizing, we further reduced headcount primarily in the Americas and EMEA, recording severance of $3 million in Q1.

We made good progress with our indirect procurement efforts and have seen substantial cost reductions in the expense categories that we have since put out to bid.

We continued to evaluate the size of our athlete roster and scope of our event sponsorships and saw reductions in those expenses in Q1 as well.

In the area of supply chain optimization, we further aligned the merchandising and design functions with production and sourcing, further reduced the vendor roster and style counts, continued to refine our product development calendar and improved the processes for global inventory management.

From a systems perspective, we went live on the first phase of the global demand planning system and made good progress in implementing SAP modules related to sourcing operations.

We also developed a detailed plan for improving efficiency and reducing costs and distribution on logistics. As we've said before, optimizing our global supply chain will positively impact our gross margins as well as operating margins. We view efforts in this area as the largest opportunity for improvement and continue to allocate resources to these initiatives.

Coming to the revenue growth part of our plan. We made investments in our high-growth emerging markets, specifically Brazil, Russia, Mexico and Indonesia. And we made progress building out our e-commerce platform and team.

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